UPDATE 1-Osaka bourse asks brokers reduce 'give-ups' - memo

Tue Mar 22, 2011 2:10pm EDT

* Members asked to cut back on give-ups through March 31

* Give-up problems spike amid post-quake market strains

* Some give-ups 'not properly concluded as instructed' -OSE (Adds ITG comment, staffing background, byline)

By Jonathan Spicer and Ann Saphir

NEW YORK/CHICAGO, March 22 (Reuters) - The Osaka Securities Exchange, home to the Nikkei 225 futures index, asked member brokers to reduce their use of the "give-up" system at the earthquake-strained marketplace, according to a Tuesday memo.

Since March 14 -- when the market opened after the devastating earthquake and tsunami on March 11 -- give-ups have spiked along with overall trading of futures and options, leading to "a large volume of give-up corrections," according to the exchange's memo to members, which was obtained by Reuters.

In a give-up, a broker that is unable to execute a client order gives that responsibility to another broker, which carries out the trade in the market.

"Situations are occurring where give-up notifications are not properly concluded as instructed," OSE said in the memo.

The give-up corrections "are building up daily, affecting the confirmation processes of transaction participants who need to take up the trades," the exchange said.

"(W)e sincerely ask that those who are using the give-up system, to give careful consideration towards executing trades without using the give-up system, in all possibility ... until the end of March."

Japan was devastated this month by a 9.0-magnitude earthquake and a tsunami that has left tens of thousands dead or missing and has set off a nuclear crisis that authorities are still trying to contain.[ID:nL3E7EL23A]

It was not clear from the memo exactly what was prompting the increased use of give-ups. But the OSE, which has remained open, said some of its member brokers were experiencing business "limitations" due to rolling blackouts in the Tokyo area and other quake-related complications.

The outages are meant to conserve Japan's limited power supply, with nuclear reactors down.

The jump in give-ups "could have to do with some of the strains of operating in Japan," said Jamie Selway, a New York-based market structure expert and managing director of strategy at Investment Technology Group (ITG.N).

"I'm not sure of the status of Japanese back-office staffing, but it's conceivable that someone could give up trades to someone else's back office because they can't handle them."

The OSE's headquarters are located well west of Tokyo, but much of its business, and many of its members, are based in the capital. Over the weekend, Japan's government said traces of radioactive iodine were found in dust in Tokyo.

Some employees of foreign banks, including BNP Paribas (BNPP.PA) and Morgan Stanley (MS.N), have left Tokyo. Last week, a report said some foreign financial institutions called on the Tokyo Stock Exchange to halt trading. [ID:nN16100051]

Asking members to curb give-ups in order to cut down on the related "corrections" could be a step toward addressing these concerns, said Selway -- albeit in this case at the OSE and not the TSE.

"At some point, if there is undue operational strain that impedes performance, you need to address it," he said. "One way you would do that is to limit trading in some way." (Reporting by Jonathan Spicer and Ann Saphir, editing by Gerald E. McCormick)

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