Tokyo Commodity Exchange Goes Down

- Updated October 11, 2014

The Tokyo Commodity Exchange (Tocom) suspended trading today for more than three hours due to connectivity issues. The shutdown came days after the exchange upgraded to a technology platform from Nasdaq OMX Group. According to Tocom, its shared network gateway began experiencing connectivity problems at 10:30 a.m. About one hour later, the venue halted all trading to switch off its router. Connectivity was restored at 2 p.m. and trading resumed at 3 p.m. for half an hour. “Although the cause of the problem remains unidentified, system connectivity is now restored to a normal condition,” announced Tocom, Japan’s largest commodity market. “We will give further notice on the cause of the problem once it has been identified.” The night session began as usual at 5 p.m. Tocom introduced night trading with the May 7 launch of its next-generation system, which is based on a trading and clearing platform from Nasdaq. NTT Data Corp., a Tokyo-based technology vendor, provided systems integration. “This is just an old-fashioned software management issue that is hard to eliminate,” said Kevin McPartland, an analyst at New York-based Tabb Group. “You can test and test and test, but it’s impossible to truly simulate a production environment.” McPartland said he doesn’t expect the problem to affect liquidity at the exchange. “But ultimately,” he added, “it’s not a good showing.” Observers may imply that there is a connection between the outage and the Nasdaq platform, according to Bob McDowall, an analyst in TowerGroup’s London office. “There probably will be some sort of linkage,” he asserted. “But it’s hard to tell at this time.” McDowall added that he has not heard of the Nasdaq system causing outages at other market centers. Cultural differences may be exacerbating the issue. “Culturally, it is often more difficult to understand the problem and who is responsible,” said McDowall. “The Tokyo Stock Exchange had similar technical problems two years ago. It doesn’t help the reputation of the market, of the participants, or of the technology, until we find out what the facts are–what exactly did happen.” The problem was most likely connected to the integration work and not the trading platform, surmised Sang Lee, managing partner of Boston-based research firm Aite Group. “Any time a new exchange platform launches, there is a high probability glitches will occur due to many moving parts and uncertainty over connectivity in a live trading environment.” According to Lee, the exchange tested the platform for two months before going live. “As the current breakdown demonstrated, the actual stability of the platform is difficult to gauge until actual live trading takes place,” he said. In April 2008, a Tocom spokesperson told Securities Industry News that the cost of the new platform, including initial development and five years of operational expenses, is about 8.8 billion yen ($91 million).

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