China restricts broker after trading error

  @sophia_yan August 19, 2013: 8:41 AM ET
everbright

Regulators have slapped a proprietary trading ban on China Everbright Securities after last week's flash spike on the Shanghai stock market.

HONG KONG (CNNMoney)

State regulators have banned China Everbright Securities from trading stocks on its own account after identifying the broker as the source of a dramatic surge in the Shanghai Composite last week.

Analysts were puzzled by unusual market activity around mid-day on Friday, when the benchmark Shanghai Composite jumped 6% in just a few minutes. When no obvious explanation for the sudden move was found, many observers speculated that a fat finger trade had been executed.

Attention focused on state-controlled brokerage China Everbright Securities, which announced late Friday that it had experienced problems using its trading system.

Everbright confirmed its role over the weekend, issuing an apology to investors and saying it would work to rectify the situation. The company now faces the possibility of significant penalties and a loss of prestige.

The China Securities Regulatory Commission said it had begun an investigation. A systems glitch, rather than human error, likely led to the market spike, it said.

The CSRC has frozen Everbright's proprietary trading activities. The company is also prohibited from creating new stock index futures positions, according to the China Financial Futures Exchange.

Everbright's trading system mistakenly placed 23.4 billion yuan ($3.8 billion) of buy orders on Friday, 7.27 billion yuan of which were executed.

The firm sold 1.85 billion yuan in ETFs, and executed thousands of futures short sales. The company said that it won't immediately sell off all its accidental purchases.

Related story: JPMorgan hiring in China being investigated

The trading glitch is the "first example since China's capital market was established," according to the CSRC.

While in the spotlight, Everbright stumbled again on Monday, accidentally selling 10 million yuan in bonds at a steep discount.

Everbright's shares remain suspended in Shanghai, but are expected to resume trading on Tuesday.

Related story: China adds fewer millionaires as economy slows

Shanghai isn't the only major market to experience a flash move in recent years.

The Dow Jones industrial average plunged nearly 1,000 points, briefly erasing $1 trillion in market value, in 2010. And in April, the Dow quickly plunged 140 points after hackers managed to send an incorrect tweet about an emergency at the White House. To top of page



Join the Conversation
Markets
Sponsored by
Index Last Change % Change
Dow 16,408.54 -16.31 -0.10%
Nasdaq 4,095.52 9.29 0.23%
S&P 500 1,864.85 2.54 0.14%
Treasuries 2.72 0.08 3.19%
Data as of 6:09pm ET
Company Price Change % Change
Bank of America Corp... 16.15 0.00 0.00%
Facebook Inc 58.94 0.00 0.00%
General Electric Co 26.56 0.00 0.00%
Cisco Systems Inc 23.19 -0.02 -0.09%
Micron Technology In... 23.91 0.00 0.00%
Data as of Apr 17
Overnight Avg Rate Latest Change Last Week
30 yr fixed4.36%4.24%
15 yr fixed3.39%3.26%
5/1 ARM3.36%3.27%
30 yr refi4.34%4.22%
15 yr refi3.38%3.24%
View rates in your area
 
Find personalized rates:
Rate data provided
by Bankrate.com
Market indexes are shown in real time, except for the DJIA, which is delayed by two minutes. All times are ET. Disclaimer LIBOR Warning: Neither BBA Enterprises Limited, nor the BBA LIBOR Contributor Banks, nor Reuters, can be held liable for any irregularity or inaccuracy of BBA LIBOR. Disclaimer. Morningstar: © 2014 Morningstar, Inc. All Rights Reserved. Disclaimer The Dow Jones IndexesSM are proprietary to and distributed by Dow Jones & Company, Inc. and have been licensed for use. All content of the Dow Jones IndexesSM © 2014 is proprietary to Dow Jones & Company, Inc. Chicago Mercantile Association. The market data is the property of Chicago Mercantile Exchange Inc. and its licensors. All rights reserved. FactSet Research Systems Inc. 2014. All rights reserved. Most stock quote data provided by BATS.