China Everbright shares pay for trading mishaps

Stock plunges by 10pc daily limit as analysts predict huge losses from serial blunders

PUBLISHED : Wednesday, 21 August, 2013, 12:00am
UPDATED : Wednesday, 21 August, 2013, 5:16am

China Everbright Securities shares plunged to their daily limit of 10 per cent yesterday following a trading error on Friday that cost it at least 200 million yuan (HK$251.5 million) in losses.

The mainland's ninth-largest brokerage, facing investigations by the securities regulator, could be fined for the spike in buy orders as a result of a glitch that pushed up the key index by 5.6 per cent in a matter of minutes.

The potential loss from its tainted reputation could be huge. The trading error showed it lacked a sufficient internal risk-control system
Essence Securities report

Everbright shares opened 10 per cent lower at 10.91 yuan yesterday and stayed there all day. Trading in the stock resumed yesterday after it had been suspended on Friday afternoon.

"The potential loss from its tainted reputation could be huge," Essence Securities said in a research report. "The trading error showed it lacked a sufficient internal risk-control system."

Everbright bought more than seven billion yuan worth of shares in the morning session on Friday, sending 16 heavyweight stocks to their 10 per cent daily upper limit.

Mei Jian, board secretary of Everbright, said it was due to a fault in the IT system as the "firewall" that should have been activated in such cases failed to work.

The China Securities Regulatory Commission (CSRC) has banned Everbright's proprietary trading for three months. As the market retreated on Friday afternoon, Everbright suffered paper losses of about 200 million yuan.

Then on Monday, a trader at the brokerage mistakenly sold 10 million yuan of government bonds at an unreasonably low price in a "fat finger" mistake, making Everbright lose another 120,000 yuan.

Analysts expect these erroneous trades could drag down Everbright's full-year earnings by up to 20 per cent.

Yesterday morning, clients of Haitong Securities complained they weren't able to sell shares of Sinopec Yizheng Chemical Fibre and Sinopec Shanghai Petrochemical because of technical problems.

Sun Yuwei, an analyst at Hongyuan Securities said such incidents could deter the regulator from liberalising the brokerage sector, which is struggling in a weak market.