Hang Seng Index

Broker's computer 'glitch' leads to HK$1.5b splurge

PUBLISHED : Friday, 09 September, 2011, 12:00am
UPDATED : Friday, 09 September, 2011, 12:00am

Hong Kong broker Sun Hung Kai Financial made a costly mistake yesterday, buying millions of China Life Insurance shares as a result of what it said was an error in its computer system.

Traders said the broker placed a buy order worth more than HK$37 billion for 2 billion shares for China Life at HK$18.82 about half an hour before the close of the stock market.

They estimated the firm ended up buying 80 million shares, spending more than HK$1.5 billion on the stock.

'We thought something was wrong when we saw such a large bid coming in,' said a trader at an international bank who did not want to be named.

'They [Sun Hung Kai Financial] quickly withdrew the bid and tried to sell some of the shares back to the market but it wasn't very successful because the share prices have been depressed.'

Within minutes of the broker's bid, China Life surged to HK$18.94 before falling to close at HK$18.62.

The broking firm said last night it 'experienced an isolated system glitch' at 3.25pm, leading to an 'erroneous' buy order for China Life.

'The error was immediately identified and rectified as soon as practicable. All trades for the day have been honoured and no clients were affected by this incident,' Sun Hung Kai Financial said.

There was speculation that the broker's computer trading system had been hacked. But a spokeswoman for the company denied there had been a cyber attack, but declined to offer details on the error.

Turnover of China Life reached HK$3.46 billion yesterday.

Sun Hung Kai Financial is estimated to still own about 70 million China Life shares as of closing yesterday and to have made a loss of HK$14 million based on the closing price of the mainland insurer.

The bid by the broker almost soaked up all the China Life shares available in the market yesterday.

While computer system glitches are not uncommon, brokers were surprised that the trading system did not detect the abnormal bid.

'This was definitely a mistake in the computer system,' said VC Brokerage director Louis Tse Ming-kwong. 'But the scale of the mistake is rare. Usually there's a limit for bids on each stock.'

Traders and brokers said Sun Hung Kai might have to find buyers or consider a placement to get rid of the shares.

'I don't think it's going to be difficult for them to sell those shares,' said Louis Wong Wai-kit, a director at Philip Securities Capital Management.

'They can offer them to their clients as long as they are prepared to offer a discount because China Life has not done very well this year.'

The mainland insurer has underperformed the Hang Seng Index, losing more than 30 per cent so far this year.

Last month China Life reported a disappointing half-year result and is looking to raise funds by selling up to 30 billion yuan (HK$36.6 billion) of subordinated bonds to help boost its solvency ratio.

Last year an erroneous algorithmic order placed by a buy-side firm caused mayhem in US markets.

Now known as the 6 May 'flash crash', it accelerated the debate on having naked access to the market and new regulations have since been put in place to prevent similar incident.


The number of shares the broker initially ordered for HK$18.8 billion

- It had lost HK$14 million at close of trading