Regulator sets final penalties for trading error by Everbright

Investors at a China Everbright Securities Co Ltd brokerage house in Beijing. The securities regulator has banned four former executives from the securities industry for life for a trading error in August. The mistake caused a stock index surge of nearly 6 percent in just three minutes. [Photo / Provided to China Daily]

The China Securities Regulatory Commission on Friday announced formal penalties for an insider trading case involving China Everbright Securities Co Ltd, levying a fine of 523 million yuan ($85.7 million) and banning four managers from the nation's financial markets for life.

On Aug 16, a flaw in Everbright Securities' trading software generated 23.4 billion yuan in erroneous buy orders on the Shanghai Stock Exchange. The brokerage eventually completed 7.27 billion yuan worth of transactions.

In response to the orders, the benchmark Shanghai Composite Index surged 5.96 percent within three minutes, prompting many investors to buy stocks.

The CSRC launched an investigation on Aug 18 into the incident. On Aug 31, the agency made a preliminary determination of the penalties and individual bans. The CSRC finalized its ruling after hearing Everbright's response.

"Until public investors were made aware of the real reasons for the market movement, Everbright Securities should have halted trading, but it immediately began a reverse operation rather than releasing the information. That had a serious impact on the market," said the CSRC spokesman.

In line with laws and regulations, the CSRC confiscated Everbright's illegal earnings from exchange-traded fund trading of 13 million yuan and 74 million yuan from futures trading.

The agency imposed a fine of five times the total trading profits.

Xu Haoming, Yang Chizhong, Shen Shiguang and Yang Jianbo, the executive managers related to the insider trading, have been banned for life from the securities and futures industries. Each faces a fine of 600, 000 yuan as well.

Mei Jian, secretary of the board at Everbright Securities, was fined 200,000 yuan for denying the company's errors to the media before having established the facts of the matter.

The CSRC said that it's determined to crack down on illegal trading and maintain an open and fair market to protect the interests of all investors, especially smaller ones.

Meanwhile, the business of Everbright Securities has taken a hit from the incident.

As of Sept 30, the company's assets stood at 53.1 billion yuan, down almost 9 percent from Dec 31, 2012.

Net profit attributable to shareholders for the first nine months stood at 510 million yuan, down 46.8 percent year-on-year, according to the company's quarterly report.