Error puts Shanghai bourse in a spin

Sources from the brokerage industry said Everbright Securities invested 7.2 billion yuan ($1.2 billion) into the buying on Friday morning.

Yin Zhongli, deputy director of the Institute of Finance and Banking at the Chinese Academy of Social Sciences, said: "What happened today is far from a simple fault. It is actually caused by supervisors' long-term toleration of price manipulation."

Yang Guoying, a researcher with China Finance Thinktank, said, "I've still got a lot of doubts and questions."

Yang added that a trader would have a quota when buying, and it was strange that such a large sum had flowed onto the market.

Short-sellers saw big losses because of the surprising surge in the morning, as Friday was the date for index futures settlement. Insiders said short-sellers saw their biggest losses on Friday since the trade started in China in 2010. Some said they will sue if there is no compensation plan.

Earlier, there were market rumors that the sudden morning surge in share prices could have been a signal that the securities watchdog may announce a new policy in reopening "T+0", a trading method that has been suspended since 1995 to prevent huge fluctuations.

Jiang, the commission's spokesman, denied this at a news conference, while saying that this system is being studied but is unlikely to be reintroduced in the near term.

Wu Nan, a manager at a quantitative investment fund in Beijing, said another possibility was that the trader made an order, thinking it was on a virtual trading system, when it was on a computer connected to the real exchange market.

"On the trading desk we usually have two computers together. One is for real transactions and the other one is for virtual trade," Wu said.

"But in general there is a firewall between the two computers, and any big purchasing order should be approved by the compliance department.

"The rumors said it was about 7 billion yuan, so this is unbelievable," he added.

Xiao Gang, head of the China Securities Regulatory Commission, wrote in Qiushi magazine this month that much of the agency's efforts in enforcement have been frustrated by the complex web of vested interests.

These are sometimes linked to government officials and senior executives of publicly traded companies, stock-broking firms and financial institutions. Investigators with the commission are faced with a host of problems ranging from detection to evidence-gathering to conviction, Xiao wrote.

China Everbright Group and its Hong Kong-listed unit, China Everbright Ltd, hold 67 percent of Shanghai-based Everbright Securities. The group has businesses ranging from banking, securities, insurance, futures and asset management to hotels, tourism and property development.

Timeline

TRADING FLUKES

• Dec 8, 2005

Broker at Mizuho Securities in Japan, entrusted by client to sell a J-Com Co share at 610,000 yen ($6,260), sells 610,000 shares at 1 yen each, triggering market panic. The Japanese securities company was hit by a loss of 27 billion yen when it decided to buy back the shares.

• Jan 19, 2006

Nasdaq trading system hit by technical failures, with main news websites showing wrong information for more than 1,500 share prices, leading traders to make wrong investment decisions.

• May 6, 2010

US trader types "billion" instead of "million" when selling stocks, sparking a sudden slump in the Dow Jones index, which falls to 9,869.62 from 10,458 in less than 10 minutes, the second-largest daily decline in history.