Shanghai bourse to boost trading checks
Print Edition
The Shanghai Stock Exchange yesterday said it will improve information disclosure as well as enhance a mechanism on market suspension and order cancelation as it faces criticism for the way it dealt with a trading error on August 16 that caused the wildest aberration in the market in four years.
The exchange said it carried out self-disciplinary regulatory measures immediately after a glitch in Everbright’s proprietary trading system sparked a deluge of orders that caused the composite index to surge 5.9 percent in two minutes on that Friday.
The exchange said it didn’t close the market that day as there was no legal basis. It approved all trades to be settled because the prices and amounts of shares complied with regulations. It also didn’t inform the public of abnormal market behavior as it was difficult to judge the real intention behind the orders.
“Some people have praised the measures we’ve taken, some raised questions, and some offered us advice,” the exchange said yesterday during an online communication with reporters. “These will all help us carry out duties better and help stabilize the market.”
A Xinhua news agency commentary on Saturday accused the exchange of “incompetence and dereliction of duty” in dealing with the Everbright fiasco. The agency said the exchange failed to protect investors’ interest when it did not issue any warning until three hours after it discovered erroneous buy orders placed by the broker.
Market watchers have been urging the bourse to be more pro-active and learn from foreign exchanges.
On August 20 when Goldman Sachs Group sent orders accidentally due to a technical error, the New York Stock Exchange quickly issued a statement to warn the market. The NYSE Euronext’s NYSE Amex Options market said most of the trades would be canceled.
In 2009, the US Securities and Exchange Commission unveiled a rule designed to stop erroneous trades from being executed.
In 2005 the Tokyo Stock Exchange compensated 10.7 billion yen (US$108 million) to Mizuho Securities when the bourse was unable to cancel misplaced orders by the brokerage.
China’s regulator has suspended the brokerage from doing proprietary business until November 18.
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