Update | Everbright Securities slapped with restrictions after trading fluke

China has slapped restrictions on the number of new stock index futures positions that Everbright Securities can build after a glitch in the brokerage’s systems caused a brief spike in the country’s stock indexes last week.

Reuters calculations show the surge created and then wiped out roughly US$100 billion worth of share value on the CSI300 Index, which tracks the largest listed firms in China, in the course of a single day.

The malfunction in Everbright’s internal propriety trading system comes at a time when China is trying to revive investor confidence in its sagging stock markets. This does not bode well for corporates looking to raise funds through share sales.

Many Chinese firms are under increasing funding pressure as economic growth indicators in China show signs of stuttering. But Beijing is uncomfortable with loading up the banking system with more risky loans - or with pushing such firms into the country’s so-called shadow banking system where non-bank lenders price credit at far higher levels.

The China Securities Regulatory Commission (CSRC) said it would launch a formal investigation into Everbright. While there was no indication that the systems glitch involved other brokerages, the state media is saying the trading fluke is symptomatic of broader market ills.

The official China Securities Journal said on Monday that the malfunction has exposed major flaws in how Chinese stock exchanges are run, alleging that there are defects in bourses’ warning mechanisms.