The Tokyo Stock Exchange's (TSE) desire to participate in any global stock exchange consolidation was undermined yesterday by the threat of a 40 billion yen (€268 million) lawsuit over its role in a botched trade last December by Mizuho Securities, one of its member firms.

The surprise announcement, which comes after months of quiet negotiations between the TSE and Mizuho, is a blow to the TSE's attempt to regain its international credibility after a series of mishaps over the past year. The news could alienate potential merger partners.

Mizuho set a deadline of September 15th for the full payment of Y40.4 billion before it considered legal action, in a letter to the exchange on Friday.

Taizo Nishimuro, chairman and chief executive of the TSE, revealed the news at the exchange's regular monthly press conference yesterday. He said: "I don't intend to pay financial compensation, so there is an extremely high possibility of the problem being solved through a court or other third party."

The TSE has been threatened with a lawsuit by a member firm before but no case has reached the courts.

The news, which follows more than 10 meetings between the two sides behind the scenes, foils the TSE's attempt to draw a line under a series of mishaps last year.

In November, the exchange was forced to close its equity trading for several hours because of a computer glitch. The next month it let through the costly erroneous sell order by Mizuho.

The securities company, which is part of Japan's Mizuho banking group, mistakenly offered to sell 610,000 shares in J-Com, a newly listed recruitment company, for Y1 per share. It had intended to sell one share for Y610,000.

Yesterday, Mr Nishimuro admitted the exchange was partly responsible for the Mizuho mishap as it had processed the mistaken order. But he denied financial responsibility.

Mizuho Securities said yesterday that "discussions" were continuing.