Market Attacked for Act of 'Desperation'

Reviewed by Hitoshi URABE

Article:
Market Attacked for Act of 'Desperation'
(Leo Lewis) The Times
http://business.timesonline.co.uk/article/0,,13133-1995580,00.html

Comments:

Takafumi Horie, 33, started his business when he was still in college, attending the University of Tokyo. He soon dropped out and concentrated his talent in business, and during the course changed the name of the firm to "Livedoor."

His name soon emerged among business sector as a forerunner of internet business, and as a capable but blatant entrepreneur.

In 2004, he expressed his intention of acquiring the Kintetsu professional baseball club when the club was about to go bust and looking for a bailout. He failed in the competition to acquire the team, but his name began to be recognized by those who would normally browse through only sports and entertainment section of media.

Horie became known to virtually everyone last year through two major incidents. In spring, he suddenly disclosed his holding of a significant share of a major radio station, the Nippon Broadcasting System, which ignited a battle over taking the control of the station with the Fuji Television Network Inc. He failed, but his attempt evoked a general discussion over how broadcasting business should be regulated, if at all. Then in September, he chose to run for a seat in the Diet's lower house, upon, apparently a hint was provided from a close aid to Prime Minister Koizumi. He lost to the incumbent old guard in the constituency, but his popularity further soared. He was provided with a nickname of "Horiemon" with a certain level of affection especially among the young who saw him as a strong reformer to challenge the old-fashioned customs.

In the meantime, Livedoor seemed to be doing well. For the year ended September 30, it reported a net profit that more than tripled from a year earlier to 15.48 billion yen, as sales jumped 154 percent to 78.42 billion yen.

Then on Monday 16th, investigators from the Tokyo District Prosecutors office and the Securities and Exchange Surveillance Commission raided Livedoor's offices on suspicions that the company had spread false information to investors.

Formal investigation has only just begun, but speculations abound about the fate of company and its CEO, reported on the headlines of not only business, but also sports and entertainment media. Thus has become a favorite subject in pubs and streets.

But the effect of the investigation was not able to be contained just as a possible crime of a company and its executives. It initiated a separate sort of incident which revealed the credibility risk of the Tokyo Stock Exchange in its capacity to handle the basic paperwork of settlement of transactions.

The stock market had been enjoying a rally since toward the end of the year upon the signs of recovery of Japan's economy, spearheaded by rising corporate profits. But as the appreciation of the market has been so brisk, there was skepticism among participants that though the general trend may be up, there could be an adjustment phase soon.

Monday's market was already nervous with such anxieties and closed lower than the previous week. That was when the report of the investigation of Livedoor came in, which was enough to trigger a panic among market participants. It worsened toward Wednesday when the unconfirmed details of the alleged crime began to circulate, and selling pressure by those attempting to avoid further losses, and orders by day-traders trying to make money out of the confusion, exploded.

The number of transactions soared to the threatening levels - about to exceed the limit the Tokyo Stock Exchange could handle, upon which a total failure of the system, including the loss of transaction records could occur - and the TSE decided to stop the trading 20 minutes short of the ordinary closing time.

As the above article reports, what began - and still going - as the Livedoor's possible crime induced revelation of the limits and problems of the Tokyo Stock Exchange.

The incident was another addition to the succession of calamities at TSE. Last November a system crash suspended all trading for a large part of one day, and in December a "fat finger syndrome" incident was wildly exacerbated to result in a loss of tens of billions of yen by the TSE's inability to reverse an obviously erroneous "sell" order.

TSE is now accused of its reluctance to deal with changes in the stock market's structure and environment. More specifically, the TSE failed to address such market changes as the emergence of online investors and the growing presence of hedge funds that conduct repeated speculative trades.

Last month, Takuo Tsurushima, the exchange's chief executive, resigned amid criticism. The job to refurbish the TSE is now left to its chairman, Taizo Nishimuro, who used to lead Toshiba, arrived at TSE only last June, and currently the acting CEO. It is arguably a daunting task for anyone, but many who have known Nishimuro seem to feel he could do it.