The Osaka Securities Exchange (OSE) introduced a new trading platform to boost its trading processing capacity seven times as high as the current system allows.
Tokyo Stock Exchange (TSE) currently delays its afternoon trading hours for 30 minutes at 1 pm. The Nikkei 225 Stock Index futures are exclusively traded at OSE from 12:30pm to 1:00pm. This one-lung trading hour is called “dangerous 30 minutes” by market participants in Japan, and regarded as one of major causes for recent volatility in Nikkei 225 Stock Index.
Before the system enhancement, as market participants rushed to trade Nikkei 225 Stock Index Futures at OSE in order to get arbitrage opportunities, they were unable to receive the execution reports from OSE in a timely manner. Some of them tried to utilize the Singapore Stock Exchange with low liquidity, but the result was that the market only became more volatile than normal.
Especially, the deviation of the Nikkei 225 Index reached to the range of 267-493 yen for the eight consecutive business days from February 10 through February 21, 2006. It is very unusual in comparison to the period from September through November in 2005 when it only occurred on 1 to 3 days in a month that the deviation reached more than 250 yen.
Upon the request by brokerage houses to ask for putting things under control, TSE and OSE initiated the process of overseeing possible improper trades as of February 17. As a result of the expansion of trading processing capacity at OSE on February 27, Nikkei 225 Index has somewhat stabilized in the range of 142-238 yen except for the end of the month.