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Date: Tue, 21 Feb 2006 12:18:11 From: Michael Furmston Subject: Japanese case
Dear Colleagues Some members of the group will remember the discussions we had in January about the incident in Japan where a careless clerk sold 610,000 shares at 1 yen each instead of 1 share at 610,000 yen. I remembered after the discussion that I did in fact have a good contact in Japan and I wrote to him. His e-mail in response is attached. He has also sent me by fax some 10 pages of English language extracts from Japanese papers. I would be happy to fax these to anyone who is interested. I do not have them in electronic form. It seems fairly clear that although it was widely recognised within minutes if not seconds that there had been a mistake, nobody thought that the transaction might be void for mistake. A number of big and at least nominally reputable dealers appear to have bought significant numbers of shares. There has been very substantial criticism of the Tokyo Stock Exchange and also some pressure from the Exchange on at least the bigger buyers to pay back their profits. Apparently the computer system would normally detect that the share was being offered at the wrong price but, in this case, the share was being offered on its first day of flotation and therefore apparently the computer did not know its standard price. One of the papers recounts two earlier transactions; one almost exactly the same, selling 610,000 shares at 16 yen each instead of 16 shares at 610,000 yen each. The other was converting an order to sell 90,000 shares into one to sell 90 million shares.
Best wishes Michael
Furmston ----Original
Message Follows---- Dear Prof. Furmston, I have just received your letter dated 31 January. The incident you referred to in the letter interested me. Last fall I made a presentation titled “Defensive measures against mispricing in e-commerce”, in which I analyzed the processes of mispricing in the websites including Japanese case, England cases, American cases and a Singaporean case, the case law of which you kindly gave me during my stay at Bristol. In the Singaporean case there was no contract because of a mistake. Therefore, when I heard about this incident of this flubbed sell order, I had the same question as you --- Why did a legal obligation to perform arise? But I did not study this incident because I was busy with routine chore. I thought your letter gave me a chance to study this incident. I searched the newspaper articles in English at the Nikkei Telecom archive. I printed the results in PDF file and bungled them in one PDF file titled as Flubbed Sell Order. I hope this will help you to answer your question. I also checked the articles in Japanese and found one article which might be of some help to you, and which was not translated into English. Here an executive in Tokyo Stock Exchange was reported to say that some European countries have a rule which forcibly nulls a sale when it was formed abnormally and was thought to give important consequences, and that TSE should consider introducing a similar provision. Since I am not conversant with the stock market rule and practice, I cannot give the information you need. But I suspect that the rule which your country has and Japan does not have made a difference. As you can see from the PDF articles, the brokerages who obtained windfall profits luckily and legally expressed their intention to return them by contributing to an investor protection fund. I wonder whether the same action would have been taken in your country if there had been a valid contract. This action is very interesting from a cross-cultural perspective. When I find an article on this incident which would interest you in some journals, I will give an English version of the main points.
Sincerely, *********************************
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