Japan Exchange Group Issued Business Improvement Orders

November 30, 2020

Company Name: Japan Exchange Group, Inc.
Name of Representative: Kiyota Akira, Director & Representative

Executive Officer, Group CEO (Code No.: 8697, TSE 1st Section)

Business Improvement Orders on System Failure and Clarification of Locus of Responsibility

FSA examined the cause(s) of the failure based on said reports and through on-site inspections. FSA found that, although the incident was directly caused by a defect in a failed device, a setting for the automatic switchover regarding the failed device was inadequate and TSE had not developed sufficient rules for trading resumption.

Based on the above, the following administrative disposition was taken against TSE and JPX, respectively.

[Business improvement order issued to TSE (pursuant to the first sentence of Article 153 of the Financial Instruments and Exchange Act)]

1. Another report on the content and implementation schedule, etc. of recurrence prevention measures for this incident that have been established and reported by TSE before October 16 as well as other recurrence prevention measures that were established by TSE after that, including items (1) through (4) below, shall be submitted, and such measures shall be swiftly and effectively implemented.

(1) TSE and the outsourcing company failed to properly understand that a discrepancy between the actual specifications of the system and the product manual provided by the manufacturer of the device meant that a setting would prevent automatic switchover in the event of a device failure.

As such, TSE shall implement measures, such as those to reconfirm existing device settings and further confirm switching processes, to ensure an appropriate and swift switchover in the event of a device failure, as is expected of TSE, and conduct a review the confirmation process for any changes in the specifications of devices, etc. to be used in the systems (including requesting the outsourcing company to conduct a review).

(2) Although TSE had multiple measures to suspend trading in a normal manner, such measures were developed based on the assumption that the device that failed this time would function normally. Therefore, the implementation of a trading suspension by means other than the normal manner was a major obstacle to resume trading within the day.

As such, TSE shall develop functions to suspend trading without depending on the device that failed this time, as is expected of TSE, and conduct a review of the dependency relationships within the systems to implement measures to prevent the failure of any particular device from affecting any important functions for continuing trading.

(3) TSE failed to sufficiently consider cases of resuming trading within the day of suspending trading by means other than the normal manner, and had not developed rules between TSE and trading participants to restrict order acceptance in the event of a system failure or to handle orders that were accepted before the trading suspension.

As a result, trading participants had not sufficiently developed systems of response for their IT systems or customers in such cases and had not conducted any tests or drills.

Also, an absence of clear rules for trading resumption was a major obstacle to resuming trading within the day of the system failure.