February 25, 2009 / 11:41 AM / 11 years ago

UBS Japan mistakenly places $31 billion bond trade

TOKYO (Reuters) - A Japanese unit of Switzerland’s UBS AG said its computer systems mistakenly placed a $31 billion order for convertible bonds (CB) of videogame maker Capcom Co on Wednesday, but it was able to cancel the trade at no cost.

UBS Securities Japan said that it had intended to place a 30 million yen order to simultaneously buy and sell the bonds in a so-called cross-trade but that its computer system placed a 3 trillion yen ($31 billion) order instead.

While the botched trade was the biggest in monetary terms in the history of the Tokyo Stock Exchange, it was placed through an off-hours trading system, traders said it had no real impact on financial markets and it was canceled at no cost to the Swiss Bank.

The incident nevertheless underscored the relatively lax approach to systems and compliance in Japan, an analyst said.

“These types of mistakes seem to happen more often here even if it’s only once every several years. They seem to be very very big when they do happen,” said Neil Katkov, senior vice president at financial services consultancy Celent.

UBS was also involved in two of Japan’s most famous trading blunders in recent memory.

In 2001, an incorrect sell order by UBS Warburg hit the trading debut of advertising giant Dentsu Inc and in 2005 UBS profited from a misplaced order by a Mizuho Securities trader for recruitment firm J-Com Co.

UBS said it put all of its gains from the J-Com trade into a fund to improve stock trading systems.

That incident prompted the Tokyo Stock Exchange to introduce a new rule in 2007 allowing brokers to cancel large erroneous orders.

The size of the botched order by UBS on Wednesday far exceeded the 595 billion yen in total convertible bond turnover on the Tokyo exchange for all of last year.

Capcom, known for the “Biohazard” and “Street Fighter” game series, issued the 15 billion yen bond in December 2001. It is set to mature next month.

“The CB is set to mature next month and trade volume has been small. We see this as causing almost no harm for us,” said Capcom spokesman Ryosuke Tanaka.

The TSE halted trading of Capcom’s CB from 12.07 pm in Tokyo on Wednesday. Capcom’s shares closed up 3 percent at 1,934 yen, not significantly impacted by the disruption to trade in its convertible bonds.

The Tokyo Stock Exchange itself has been upgrading its computers after a series of glitches, including one in 2006 when a scandal at Internet firm Livedoor sparked a sell-off that swamped systems and prevented normal trade for three months.

Reporting by Mariko Katsumura and Nathan Layne; Editing by Michael Watson and David Cowell

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