China Everbright Securities
China Everbright Group is a state-run financial conglomerate. Its operations include China Everbright Ltd, which listed in Hong Kong in 1997 with the stock code 165. Another unit, brokerage China Everbright Securities, was penalised in August 2013 after a trading glitch caused a spike of more than 5 per cent in China’s stock indexes on August 16.
CSRC faces challenge over its powers in Everbright lawsuit
Ex-Everbright executive hopes the lawsuit will enhance transparency in the stock market and force the regulator to properly use its authority
Yang Jianbo waved off questions about his own prospects, insisting the lawsuit that pits him against the mainland's securities regulator will eventually help enhance transparency in the policy-driven stock market.
The former head of a trading department at Everbright Securities, who was banned for life from the securities industry following chaotic trading in August last year, admitted that the decision to sue the China Securities Regulatory Commission was aimed at protecting his own reputation in the first place.
But Yang, 37, said there was another motivation - forcing the CSRC to properly use its power to regulate the market.
"I have my responsibility over the erroneous trading and have already become a negative example," he told the South China Morning Post. "But the regulator's punishment was by no means justified."
On the morning of August 16 last year, a computer bug caused Yang's department to mistakenly place a buy order worth 7.27 billion yuan (HK$9.2 billion) that propelled the key indicator up by more than 5 per cent.
Everbright pared its position in the afternoon to cut losses before issuing a statement to the public, while the CSRC slapped a record fine of 523 million yuan on the firm, citing the resulting share sales on the Shanghai stock exchange and short-selling on the China Financial Futures Exchange as "insider trading".
Yang and three other Everbright executives, including president Xu Haoming, were "expelled" from the market as the CSRC attempted to show zero tolerance to such irregularities.
The punishment was deemed a controversial decision among analysts and lawyers because there were no clear-cut rules governing the practices.
"The CSRC also hid some detailed information during the incident," Yang said. "I have to tell the truth and seek justice. It's not just about the case itself, it's related to the overall regulatory environment."
Yang, who holds a doctorate of finance from the University of Manchester, said the regulator and the exchanges were fully informed of the brokerage's plans to unwind their positions on the afternoon of August 16.
The Shanghai stock exchange said earlier that it did not block the transactions due to a lack of experience.
Yang was the only one among the four former Everbright officials to take the CSRC to court. A Beijing intermediate court accepted the lawsuit in February.
"The lawsuit will be of benefit to the securities market in the long term because it helps players and regulators better understand their roles and will force them to resort to laws and regulations in future," said a source close to the regulator. "At least some of the CSRC officials are privately discussing the legality of the punishment and considering fine-tuning the existing rules."
When the chaotic trading occurred, hundreds of institutional and retail investors chased the short-term rally, only to suffer paper losses following an abrupt fall during intraday trading.
They vented their anger not only towards Everbright, but to the CSRC for its ineffective regulation on arbitrage trading, an investment strategy based on pre-programmed mathematical calculations.
Yang's department was one of the first in the mainland's securities sector to adopt the trading method known as "algo" or "quants". The approach gained ground in the country in recent years as the CSRC encouraged brokerages to introduce such innovations as a way to expand their revenue sources amid a weak market.
Yang said he had no long-term plans because he wanted to focus on the trial. But in the short term, he has found a new career. He was hired by the Shanghai University of Finance and Economics as a professor in January.
"I want to give my students more practical knowledge and skills to help them pursue a better future in their careers," he said.