Tokyo Stock Exchange Head Miyahara Resigns After Outage

Tokyo Stock Exchange president Koichiro Miyahara will step down to accept responsibility for the all-day outage that halted trading on the world’s third-largest equity market last month.

Akira Kiyota, the chief executive officer of parent Japan Exchange Group Inc., will retain his post while taking a 50% pay cut for four months. Kiyota will temporarily take over Miyahara’s role as head of the exchange, with Miyahara also stepping down from his role as co-chief operating officer of Japan Exchange. The resignation was earlier reported by the Nikkei.

The exit comes after regulators issued a business improvement order to the Tokyo bourse as well as Japan Exchange Group, following an investigation into the outage on Oct. 1. That was the first all-day stoppage of trading since the exchange shifted to a fully electronic system in 1999, and an embarrassing episode for the exchange, damaging an ongoing pitch by Japan’s government to position the country as an Asian financial hub.

“Miyahara’s resignation is a huge loss for the Tokyo Stock Exchange,” Kiyota told a briefing in Tokyo on Monday. Miyahara, who was not present at the briefing, asked to resign to take responsibility, Kiyota said, adding the board had not planned to seek his dismissal.

As Miyahara’s predecessor as head of the exchange, Kiyota said he would take on the role on an interim basis until a suitable replacement was found.

Miyahara’s resignation threatens to leave a vacuum at a time the exchange is in the middle of a historic reform. The bourse is currently in the midst of a review that will reduce the Tokyo Stock Exchange’s five cash equity markets to three and reform the bloated list of First Section companies that make up the Topix index.

Miyahara, 63, joined the Tokyo Stock Exchange in 1988, having started his career at utility Electric Power Development Co. He worked his way up to become president of the exchange in 2015. Under his leadership, the bourse had until this year avoided any of the major trading outages which had blotted its record in the past.

Resignation Precedent

Miyahara’s resignation has precedent. In 2005, Tokyo Stock Exchange President Takuo Tsurushima stepped down after two computer breakdowns in the space of six weeks. Tsurushima was the most senior executive at the bourse at the time, before the TSE merged with the Osaka Stock Exchange to form Japan Exchange Group.

“Compared with the outages seen in early 2000s, this time is far worse,” said Naoki Fujiwara, chief fund manager at Shinkin Asset Management Co., speaking before the Nikkei reported Miyahara’s resignation.

Asked if the punishment on this occasion was lighter than in 2005, given that Kiyota himself did not step down, the CEO said that the circumstances were different, as clients had incurred large losses at that time.

Tokyo Stock Exchange Head Miyahara Resigns After Outage

This year’s outage occurred partly due to a change in settings in an update to the Arrowhead trading system in 2015, which was not reflected in the manual supplied by system developer Fujitsu Ltd., the exchange revealed last month. The Arrowhead system was launched to much fanfare in 2010, billed as a modern-day solution after the series of outages on an older system.

Kiyota said that while Fujitsu bore some responsibility for the outage, he also continued to reject the suggestion of seeking damages from the electronics maker, and said instead that he was seeking to have the company use its know-how to boost the exchange’s resilience.

The breakdown came on the first day of a new quarter and of the second half of Japan’s fiscal year, when trading volumes would typically be high as many funds adjust their positions. One of Japan’s most closely watched economic indicators, the Bank of Japan’s Tankan survey, was also released just 10 minutes before trading was set to begin, leading to fierce criticism from figures including Prime Minister Yoshihide Suga that investors were denied trading opportunities.

Suga also been attempting to make Japan a more inviting location for overseas financiers -- just as the national security law roils Hong Kong. Having decided it could not restart the exchange that day without causing chaos, Japan Exchange has since formed a panel to discuss the rules for resuming trading after stoppages, with results due by the end of March.

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