$121M award for botched transaction rocks Tokyo exchange

A court ordered the Tokyo Stock Exchange Friday to pay 10.7 billion yen ($121 million) in damages to Mizuho Securities Co. Ltd. over massive losses in a botched transaction.

Ayako Osada, a spokeswoman for the Tokyo District Court, confirmed the verdict. It was the first-ever court dispute between the bourse and a member brokerage.

Mizuho sued the Tokyo Stock Exchange in 2006 over big losses it incurred in 2005 due to a computer error at Japan’s largest bourse. Mizuho said losses due to a botched transaction amounted to 40.7 billion yen.

The transaction on Dec. 8, 2005 involved a Mizuho trader selling 610,000 shares in job recruiting company J-Com Co., now J-Com Holdings Co., for 1 yen each instead of an intended sale of 1 share at 610,000 yen.

Mizuho said it placed a cancellation order but a technical glitch at the Tokyo Stock Exchange failed to process the request properly.

The brokerage subsequently filed suit for 41.5 billion yen.

In its ruling, the court said the TSE bore 70% of the blame.

TSE President Atsushi Saito said the exchange is considering several options including a possible appeal, according to Kyodo News agency.

The bourse has much at stake.

A 10.7 billion yen payment would represent a hefty chunk of its annual earnings. The exchange booked 19.9 billion profit in the 2006 fiscal year. In the last fiscal year through March 31, it posted a net loss of 3.7 billion yen.

If implemented, the ruling may also force the TSE to further delay its initial public offering. In the spring, it shelved plans to go public this fiscal year, pushing an IPO to the next fiscal year starting April 2010.

Mizuho is Japan’s third-largest securities house behind Nomura Holdings Inc. and Daiwa Securities Group Inc. The company said it is reviewing the ruling and will carefully decide its response.