Last week’s shutdown of share trading on the Tokyo Stock Exchange was caused by misunderstandings between companies involved in different parts of the exchange’s IT operation, according to the exchange.

The Tokyo Stock Exchange asked Fujitsu, the computer company, to issue certain instructions to TCS, a company spun out of the TSE but still affiliated to it, the TSE said.

But during the process the instructions were misunderstood, and a crucial software file was not moved to where it should be. The result was that during the regular end-of-month clean-up of the trading system, an error occurred which prevented trading of stocks and convertible bonds for all but 90 minutes of the day.

The TSE’s latest explanation for why the system crashed, which differs somewhat from its earlier explanation, raises questions about the complex process by which instructions are transmitted from company to company.

It also suggests that with a more rigorous checking process, last Tuesday’s shutdown – the first total shutdown of all share trading in the TSE’s 56-year history – might have been avoided.

The TSE spokesman said it was difficult at this stage to apportion responsibility between different companies or individuals. But he acknowledged that even if another company working with the TSE had made a mistake, “if we had had a checking process” the mistake would have been cleared up.

The TSE also said its earlier suggestion, that the failure had been connected to an upgrading of the trading system’s capacity because of an ever higher volume of orders, had been mistaken. The exchange had always been cautious about its preliminary explanation.

The cause now appeared to be a software bug that pre-existed the capacity upgrading. Although the bug had been eliminated, the clean-up process after the correction had gone wrong.

The TSE plans to hold an extraordinary board meeting on Thursday to discuss the shutdown, and to work out where to place responsibility for the failure.

Last week’s shutdown has raised questions about the TSE’s plans to achieve its own listing in 2006-7. Under TSE rules, the exchange can be forced to pay fines to member companies if it has committed gross negligence. The spokesman said it was too early to comment on the likelihood.

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