Tokyo Stock Exchange Acts to Avoid New Debacle

The embattled Tokyo Stock Exchange said yesterday it would expand its daily trading capacity to prevent a repeat of Wednesday's debacle, when a high-profile investigation into the internet firm Livedoor prompted a flood of sell orders that forced the exchange to close early.

The market pulled the plug 20 minutes before the normal close of business as trade volume approached its capacity of 4.5m transactions a day. The closure was the latest in a series of disruptions to the world's second biggest stock market that have been blamed on its ageing computer system.

The TSE said it would boost the number of trades it can handle daily from the current 4.5m to 5m - the same number the New York exchange processes on an average day. The new capacity could be in place as early as next week.

By the end of the year the exchange hopes to install a new system capable of handling 7-8m trades, and 14m orders, a day. As a precautionary measure the market will continue to delay the start of afternoon trading by 30 minutes to give the system time to clear trades completed in the morning.

The TSE enjoyed a bumper 2005, with gains of 40%, but its impressive performance was marred by technical problems blamed on years of underinvestment. On November 1 last year a computer glitch wiped out all but the final 90 minutes of the day's trading; computer error was also blamed for a botched sell order at the end of last year that cost Mizuho Securities $350m. The blunder led to the resignation of TSE president Takuo Tsurushima, who was replaced by Taizo Nishimuro. The exchange's woes have proved an embarrassment to the Japanese government as it seeks to convince the world that the country's economy is truly back on track.

"It is imperative to get operations at the Tokyo Stock Exchange back to normal as soon as possible for the sake of the Japanese economy," Kaoru Yosano, the financial services minister, said.

The announcement came as prosecutors began questioning Livedoor executives amid media reports that the firm deliberately issued false information about acquisitions of more companies than at first suspected. Prosecutors reportedly summoned Livedoor's chief financial officer, Ryoji Miyauchi, its director, Fumito Kumagai, and several other executives. Rumours that they were also to summon Livedoor's maverick CEO, Takafumi Horie, prompted a flood of sales of Livedoor stocks, which have lost 52% of their value, or $3.3bn, since the investigation began on Monday.

Livedoor was last night due to submit to the TSE the results of an internal investigation into allegations that it spread false information to investors.