A unit of JPMorgan Chase & Co. botched a trade for a basket of Japanese stocks on Monday when it mistakenly sold shares linked to the wrong index, helping spark a brief fall in the market.
JPMorgan Securities Japan Co. Ltd. said late on Monday it placed a sell order for a basket of stocks linked to the TOPIX index instead of filling the intended sell order for a basket of stocks in Tokyo's benchmark Nikkei average.
The order was manually placed on behalf of an overseas affiliate and executed at the opening of the afternoon market session on Monday. The brokerage said it later bought back the same basket of securities.As this order may have affected the market, we are publicly disclosing this error, the brokerage said in a statement.
We do not believe, however, that this order has had a material effect on the share price of any of the shares included in the basket, it said. The TOPIX index started the afternoon session at 1,546.03, down sharply from 1,556.03 before the lunch break. It finished Monday at 1,559.78, down 0.24 percent from Friday's close.
While the Nikkei average comprises 225 of the most liquid blue-chip Japanese stocks, the Tokyo Stock Exchange's TOPIX index is a capital-weighted average of more than 1,600 issues listed on the exchange's first section.
As Monday's erroneous sell order affected a broad range of issues, hundreds of stocks, including some illiquid bank shares, remained untraded with a glut of sell orders in the first few minutes of the afternoon session, one market source said.A spokeswoman at JPMorgan Securities Japan said on Tuesday that the brokerage was unable to comment on whether the erroneous order had left the firm with a loss.
STRING OF ERRORS
The incident came on the heels of an industry-wide move to try to prevent trading errors after a string of blunders by Tokyo-based brokerages in the past year.A mis-typed order by a brokerage unit of Mizuho Financial Group Inc. (8411.T) of a newly listed recruitment firm in December, for example, cost the brokerage a one-time charge worth $350 million to clean up the mess.
The Mizuho unit has asked the Tokyo Stock Exchange for 40.4 billion yen ($347.1 million) in compensation for failing to stop the order from being executed. The exchange is refusing to pay.Unlike misplaced orders on individual stocks, the one yesterday didn't have too much impact on the market as a whole, said another market source who declined to be identified.
After realising its mistake, JPMorgan Securities Japan is believed to have bought a net of almost 80 billion yen of TOPIX index futures to limit the damage. Liquidity on the index futures market is usually higher than the cash market.Arbitrage transactions in due course increased between index futures and underlying securities, resulting in a rise in the day's turnover on the first section to 2.14 trillion yen, up 4 percent from Friday, in an otherwise quite market.
Market sources said a sudden rise in volatility in the NT index, the ratio of the Nikkei average divided by the TOPIX index, on Monday indicated something strange had occurred.