Error blamed for share trade frenzy
Print Edition
Chinese stock prices swung wildly yesterday after a brief trading frenzy blamed on a brokerage’s computer error.
The key Shanghai Composite Index, which had traded in negative territory for most of the morning session, started to shoot up at around 11:05am and soared to 5.9 percent in two minutes. The index erased gains in afternoon trading and ended 0.64 percent lower at 2,068.45 points.
The country’s ninth-largest brokerage, Everbright Securities Ltd, said later it suffered an unspecified problem with a computerized trading system.
A China Securities Regulatory Commission spokesman said the abnormal stock market spike was mainly caused by a large number of purchase orders sent from Everbright Securities’ own account.
Everbright sent 7 billion incorrect purchase orders for shares, according to China News Service.
Everbright asked to have its trades canceled, CNS said. But a statement on the Shanghai exchange website said any transactions that were completed would be cleared normally.
The biggest intraday surge since March 2009 saw about 15.3 billion shares of Shanghai Composite companies change hands, compared with the 30-day average of 10 billion, according to data compiled by Bloomberg.
Erroneous order
In a filing to Shanghai Stock Exchange, Everbright Securities said the problem occurred during the use of its arbitrage system by the proprietary trading bureau of the broker’s strategic investment department. It is investigating the incident, the broker said, without specifying how the erroneous order was made.
The China Securities Regulatory Commission and the Shanghai Stock Exchange are jointly investigating a large number of purchase orders sent from the Everbright Securities’ trading account, the CSRC spokesman said.
The Shanghai Stock Exchange operator said its system was operating normally yesterday and all completed trades would be proceeded with as usual.
“Nobody knew what had happened at first and there were many irrational follow-up buys amid speculation that the government was supporting share prices,” said Zhang Qi, an analyst with Haitong Securities.
A total of 71 Shanghai-listed shares rocketed up by the daily limit of 10 percent in late morning trading before giving up gains, including PetroChina Co and Industrial & Commercial Bank of China Ltd.
Everbright also leapt 6.7 percent before trading of its shares was suspended in the afternoon, while China Everbright Ltd, the controlling shareholder of the Shanghai-based broker, fell 5.5 percent in Hong Kong trading.
Many individual investors were caught after short-lived joy in the most volatile session in recent years in China’s stock market, where two-thirds of trading are made by investors who tend to seek quick profits amid wild swings.
“I bought in some shares of blue chips after the surge of big-sized banks, which I deemed as a positive signal for heavyweights,” said Li Jin, a veteran investor, who lost money.
“It was not fair for us to pay for their mistakes,” said investor David Liao.
Mei Jian, secretary of Everbright’s board of directors, denied rumors of a possible trade cancellation application, according to Xinhua news agency.
Mei also denied a rumor that the company’s internal simulated trading system was used in real trading. Mei said the arbitrage system would not be used again until the company finds out how it failed.
Everbright uses its own funds for trading, so the incident did not incur losses for its clients, he said.
The Hours That Shook The Stock Exchange
11:04 The Shanghai Composite Index, which was trading in the negative territory for the most of the morning session, starts to shoot up, eventually soaring by 5.9 percent.
11:44 Shanghai Stock Exchange posts a statement on Weibo saying its trading system is operating properly.
14:22 China Everbright Securities says in a filing to the stock exchange that a problem occurred during use of its independent arbitrage system.
15:00 Shanghai Stock Exchange says in a statement on Weibo that all trades will proceed to clearing and settlement processes as usual.
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