In December 2005, a “fat fingered” Mizuho Securities trader (unnamed, and now presumably unemployed) sold 610,000 shares at 1 yen instead of selling 1 share at 610,000 yen. The error resulted in Mizuho losing 27 billion yen (about US$225 million at the time), perhaps the most expensive single trading error in history.
Mizuho decided to sue the Tokyo Stock Exchange for not having a safety system in place to prevent these types of errors, and almost four years later, the court has ruled that the TSE is liable to the tune of 10.7 billion yen, or about 40% of the original damages. The presiding judge called the lack of safety measures “absurd” and that the exchange failed to exercise the suitably duty of care. In addition to a lack of failsafes preventing such a trade, the TSE’s computer system was unable to process the cancellation order after Mizuho tried to withdraw the trade.
On the one hand, I am frustrated by the ruling because of the vague formula used to calculate the award, which I think is just an arbitrary number that the judge felt was right, rather than a careful calculation. Mizuho was deemed to be partially at fault, and the judge came to the conclusion (perhaps using some type of metric that the TSE bore 70 percent of the blame. The damages to Mizuho are pretty easy to calculate: 27 billion yen — plus three years of interest! How 70% responsibility for the loss results in an award of 40% of the amount of damages makes no sense to me. Such is the problem with judges in Japan, or as some Japanese critics would call it, 裁判できない裁判官 — judges who cannot judge.
I see the ruling as a victory for accountability, which is sorely lacking in Japan. The very word means responsibility what happens, yet in Japan it is regularly translated as 説明責任, or the mere “responsibility to explain.” That has often been the approach to accountability in Japan — as long as someone can explain what happened, there is no blameworthiness or real liability. Hopefully we’ll look back at the TSE “Fat Finger” ruling as the first major move by courts to introduce a -Western- modern style of accountability.