HONG KONG-China’s securities regulator issued a fine of 523 million renminbi ($85 million) on Friday against a brokerage firm whose erroneous trades caused a sudden but short- lived 6 percent increase in Shanghai’s main share index on Aug. 16.
The China Securities Regulatory Commission ruled that the abnormal trades conducted by the brokerage firm, Everbright Securities, had constituted ‘‘a number of legal and regulatory violations,’’ Xinhua, the state-run news agency, reported Friday. In addition to the fine the regulator banned four Everbright staff members from the securities industry for life and ordered the brokerage firm to cease all proprietary trading activities for three months, Xinhua said.
The Shanghai composite index had been trading down on Aug. 16, a Friday, until 11:05 a.m., when it spiked 5.96 percent higher over the course of two minutes â€" with shares in China’s biggest banks and energy companies, and other blue-chip stocks, surging to the 10 percent daily limit â€" for no apparent reason.
Shares in Everbright Securities were suspended from trading that day, and the brokerage said it was investigating a problem within its trading systems. News outlets immediately began speculating that someone at the brokerage firm had committed a so-called fat-finger trade, in which a trader inputs the wrong number. In Chinese, it is called an ‘‘oolong-finger’’ trade, after the slang term for a soccer player’s kicking the ball into his own net.
On Aug. 18, the securities regulator issued a preliminary finding that traders at Everbright had caused the spike by submitting erroneous buy and sell orders worth a total of 23.4 billion renminbi ($3.8 billion).
Of those orders, the brokerage firm was on the hook for 7.3 billion renminbi worth of trades that had been successfully executed â€" much to Everbright’s chagrin, as the market promptly reversed the spike and ended the session down. Everbright estimated that it lost 194 million renminbi on the trades, based on Aug. 16 closing prices.
On Aug. 22, Xu Haoming, Everbright’s president, resigned to take responsibility for the glitch. Mr. Xu was one of the four brokers suspended Friday for life from the securities industry. The others were Yang Chizhong, Shen Shiguang and Yang Jian.
Everbright shareholders will no doubt share the pain. The fine announced Friday appears to be a record for China, and is equal to nearly two- thirds of the 810 million renminbi in net profit that Everbright reported for the first half of the year.
Everbright Securities, listed in Shanghai, is part of the state-run China Everbright Group, whose chairman is Tang Shuangning. The U.S. Securities and Exchange Commission is currently conducting a bribery investigation of JPMorgan Chase, which had employed Mr. Tang’s son, The New York Times has reported.
Investigators are looking at whether the American bank made the hire in an attempt to win business from the Everbright Group.
