Fraud suspends trading in Tokyo
Adversity struck the equity markets of the world's two largest economies last week, when police raids on the Japanese internet company, Livedoor, resulted in a plethora of sell orders that overwhelmed the Tokyo Stock Exchange's (TSE) electronic trading system and produced the largest losses in 9 months. Similarly, Wall Street suffered the greatest single-day decline since 24th March 2003, wiping out this year's gains; with disappointing earnings reports from Citigroup and General Electric unnerving traders.
Corporate scandal has once again swept the headlines, but in this instance, it is Japan that must suffer the ordeal. On Monday 16th January, officials from the Securities and Exchange Surveillance Commission raided several properties associated with the prominent internet company Livedoor.
The raid was covered by several television crews, lasting 12 hours, after which, investigators emerged with vast quantities of seized documents and computers. Not only company headquarters targeted, but also the building that houses the company's servers and the residences of several top executives.
The Chief executive and two of his associates are under suspicion of fraudulently boosting the company's share price. They allegedly instructed the advertising subsidiary, Livedoor Marketing, to promote Livedoor's acquisition of a publishing company already controlled by the company through investment partnerships.
The dramatically publicised tribulation, reminiscent of Enron, resulted in a 2.84% fall in the Nikkei 225 index of Japanese shares, the Tuesday morning after the raids. Livedoor share trading was suspended after exceeding the maximum drop permitted by Tokyo Stock Exchange Rules. The plunge has devalued the company's market capitalisation by ¥105bn.
On Wednesday 18th January, continued heavy selling drove the Nikkei down a further 2.6% to a point where the TSE's computerised trading system, was nearing its capacity. Trading was eventually suspended early. The current capacity of the exchange stands at 4.5 million transactions and 8.5 million orders. and this was the first time in the exchange's history that these capacities have been reached.
The 20th January marked the worst day in three years for the Dow Jones Industrial Average in the US, falling 2%. Oil prices spiking around the $69 per barrel, the nuclear stand-off with Iran and poor earnings from Citigroup, General Electric and Motorola have been identified.
Apple, Ebay and the chip maker Xilinx, have all indicated weaker earnings. Google slumped 8.5%, its worst day as a listed company, adding to investor concerns about technology stocks.
