Stock surge blamed on flaws in the system
Print Edition
Design flaws in a trading system used by China Everbright Securities were to blame for a wild rally on Shanghai’s stock exchange on Friday, the country’s top securities regulator said yesterday.
The flaws resulted in a chain of errors which triggered massive buy orders, according to the China Securities Regulatory Commission.
A preliminary investigation found no evidence of human error, the regulator said.
The glitch caused a sudden surge in Shanghai shares late on Friday morning and sent the benchmark Shanghai Composite Index, then lingering in negative territory, to jump 5.9 percent in just two minutes.
In a statement released yesterday, Everbright said flaws in its order generating system unexpectedly placed 26,082 buy orders in two seconds, while failure in its order execution system sent the orders directly to the Shanghai Stock Exchange.
The erroneous orders totaled 23.4 billion yuan (US$3.8 billion) and the actual transactions were 7.27 billion yuan, according to the CSRC.
China News Service reported on Friday that Everbright had applied to cancel the trades, but the CSRC reiterated that all completed trades on Friday are valid.
The regulator said it had decided to launch a formal investigation into Everbright.
The Shanghai securities regulator has suspended “related businesses” at Everbright and ordered the broker to overhaul the company.
A total of 71 Shanghai-listed shares rocketed by the daily limit of 10 percent during Friday’s mad rally before giving up gains.
They included heavily-weighted blue chips PetroChina Co and Industrial & Commercial Bank of China Ltd. Everbright also leapt 6.7 percent before trading of its shares was suspended.
There were claims Everbright were guilty of manipulating the market as they sold 1.85 billion yuan of shares following the erroneous buying of stocks.
“The following trades were remedies in an attempt to minimize the company’s losses,” Xu Haoming, president of Everbright, said yesterday.
Everbright suffered a daily loss of 194 million yuan.
“This is the first case of its kind in China’s capital market,” a CSRC spokesman said.
“It’s extreme and isolated but it exposed problems that should raise vigilance from the market,” he added.
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