The Tokyo Exchange Spotlights a Potential Disaster
Like the snowball that starts a landslide, small happenings in the stock markets of the world are capable of kicking off major panic.
The recent shutdown of the Tokyo Stock Exchange is an example. Investors panicked when a company named Livedoor, which is substantially and aggressively involved in various Internet businesses, got raided by investigators from the Tokyo District Prosecutors' office and the Securities and Exchange Surveillance Commission. Livedoor, a favorite of individual Japanese investors, was thought to be cooking its books and the raid caused an avalanche of sell-offs. The Exchange, unable to keep up with sell orders, closed 45 minutes ahead of schedule.
By the time the snow was at the bottom of the mountain, some $300 billion had been wiped off market valuations.
Individual investors in Japan make approximately 40 percent of all trades on Japanese exchanges and account for most of last year’s steep rise in the Nikkei, which recently hit a five-year closing high. But i…