CSRC targets abnormal trading

Three weeks after a trading system glitch at Everbright Securities roiled A-share markets, the China Securities Regulatory Commission (CSRC) announced Friday that it will improve measures to cope with abnormal transactions.

Speaking at a regularly scheduled press conference, a CSRC spokesperson said the commission will clarify its definition of "abnormal" as it pertains to the trading of securities and futures. The regulator will also take steps to enhance its supervision over trading and pre-trading systems. Further study will also be devoted to the establishment of related information disclosure protocols and mechanisms to cancel abnormal transactions.

"This episode with Everbright has shown that there is still room to improve the mechanics that facilitate trading, particularly those which apply to the prevention and management of irregular transactions," Li Daxiao, research director at Yingda Securities Co, told the Global Times Sunday.

Li also remarked upon the importance of rendering a clear definition of abnormal trading and said that the CSRC's latest efforts along this front were necessary to sustain the development of China's capital market.

On August 16, Everbright's electronic trading system malfunctioned, sending 26,082 buy orders worth a combined 23.4 billion yuan ($3.82 billion) to the Shanghai Stock Exchange, media reports say. Of these orders, roughly 7.27 billion yuan in transactions were executed. This sudden flood of transactions sent the Shanghai Composite Index surging up by more than 6 percent in a matter of minutes, much to the puzzlement of investors and exchange authorities.

Before coming clean about its role in this incident, Everbright reportedly sold off part of its exchange-traded funds and index futures to hedge against losses. The brokerage's damage-control play was said to have earned it 87.21 million yuan while the rest of the market scrambled to make sense of the inexplicable upswing in volatility.

On August 30, the CSRC ordered Everbright to pay 523 million yuan for insider trading committed during last month's incident, according to information released by regulators. Four Everbright executives were also fined 600,000 yuan and permanently banned from the securities market. Meanwhile, the brokerage itself has been ordered to halt proprietary trading under its own account and is prohibited from applying to engage in new business activities. Everbright may also face litigation from individual investors who suffered losses due to company misconduct.

According to Li, regulators have been harsh with Everbright since this is the first time that China's securities market has been rocked by such a disturbance.