At 7:04 am on a Thursday in Tokyo, the managers of the world’s third largest stock market realized that there was a problem.
An essential data device for the company’s trading system Tokyo Stock Exchange it was not working, and the automatic backup failed. This less than an hour before the system, called Arrowhead, started processing orders in the $ 6 trillion stock market. Stock exchange officials did not find a solution.
The one-day stoppage that followed was the longest since the exchange switched to a fully electronic trading system in 1999. The event drew criticism from market participants and authorities and highlighted a vulnerability less discussed in the global financial “pipeline”: not software or security risks, but the danger when one of the hundreds of pieces of hardware that make up a trading system decides to stop trading. work.
“Stock exchanges are a crucial part of the market infrastructure, and it is unacceptable that trading opportunities are denied,” Japan’s Finance Minister Taro Aso told reporters in Tokyo. “We are dealing with machines, so it is always possible for them to break. It is necessary to create infrastructure with this possibility of failure in mind. ”
The Tokyo Stock Exchange Arrowhead system was launched with great fanfare in 2010, heralded as a modern solution after a series of disruptions to an older system created constraints for the stock market in the 2000s. The “arrow” symbolizes the speed of order processing, while the “head” suggests robustness and reliability, according to the exchange. The system of approximately 350 servers that process purchase and sale orders had some hiccups, but no major disruptions in its first decade.
Everything changed on Thursday, when a piece of hardware called the # 1 shared disk device, one of the two square data storage boxes, detected a memory error. These devices store management data used on the servers and distribute information such as commands and identification and password combinations to endpoints that monitor trades.
It was the first time in almost fifteen years that the stock market suffered a complete halt in trading. The Tokyo Stock Exchange has a policy not to close even in natural disasters, so for many, this experience was unprecedented.
In the evening, it was announced that the exchange would resume trading on Friday. Although the incident passed without any major problems, many questions remain unanswered. One of the main ones is whether the same type of hardware failure could occur in other stock markets. For a strategist, it almost certainly could, but that’s not something to worry about.
“There is nothing exclusively Japanese about it,” said Nicholas Smith of CLSA in Tokyo. “I think we just have to put this in the ‘things happen’ box. They shouldn’t, but they happen. ”