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Trader aiming to sue CSRC

2014-02-17 08:50 Global Times Web Editor: qindexing
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The former head of a trading unit at Shanghai-based brokerage Everbright Securities Co said Sunday that he hopes a Beijing court will accept his application to sue China's securities market regulator for imposing an "unfair punishment" for insider trading last year.

Yang Jianbo, former general manager of Everbright's strategy and investment department, told the Global Times Sunday that he filed a lawsuit against the China Securities Regulatory Commission (CSRC) on February 8 at Beijing No.1 Intermediate People's Court.

"I was placed in a vulnerable position, and I think the [CSRC's] treatment of the case was unfair," he said, adding that the court has not accepted the case yet.

Everbright caused a sudden spike of 5.96 percent in the Shanghai Composite Index in the morning of August 16, 2013, after its trading system mistakenly created 26,026 orders and sent them to the Shanghai Stock Exchange (SSE). The company promptly sold part of its portfolio in exchange-traded funds (ETFs) and sold index futures contracts that afternoon to hedge against risks.

However, the firm did not issue a formal notice about the mistake until around 2:30 pm, and its board secretary, Mei Jian, even denied that the brokerage had made any errors during the stock market's noon break.

The CSRC said on August 30 that Everbright was guilty of legal and regulatory violations and handed the firm a record fine of 523 million yuan ($86.24 million), since the company failed to inform investors of its mistake before selling ETFs and index futures. Yang and three other colleagues were banned for life from the securities industry and fined 600,000 yuan each by the watchdog.

According to Yang, staff members of the Shanghai branch of the CSRC and SSE arrived at Everbright's office to inquire about the trading error soon after the glitch happened.

Yang said he told them that the company would hedge against risks by selling ETFs and index futures in the afternoon, and nobody stopped him from doing so.

The China Financial Futures -Exchange (CFFE) had several phone conversations with Yang when his team was selling ETFs and index futures in the early afternoon, and suggested to Yang that he should not "sell too much," he said.

"I never thought that what we did was insider trading," Yang said. "We just hedged against the risk in accordance with the company rules, and no officials who knew about it told us not to do it."

Zhang Taowei, a professor of finance at Tsinghua University, told the Global Times Sunday that the CSRC, SSE and CFFE did not stop Everbright from hedging against risks because it was not their responsibility to do so.

"The regulators and exchanges cannot interfere with a company's trading decisions," Zhang said.

Yang said he talked to company lawyers in early September and started communicating with other lawyers about the CSRC's "unfair punishment" in mid-December. He decided to file a lawsuit in late December after "losing all hope" that the CSRC would listen to his argument, Yang said.

"I filed a written statement to the CSRC as soon as I got the formal punishment notification in November, but the regulator did not give me any direct explanation for its decision or evidence of what I did wrong," he said.

According to China's Securities Law, when someone intentionally uses inside information in trading of securities or index futures, that person or entity is conducting insider trading.

Yang said that a system error should not be considered as inside information, and he did not mean to "use the information" to trade in the afternoon. Also, before the company started trading in the futures market, plenty of media outlets had reported on the firm's trading error.

"It didn't matter that Everbright told the regulators that its system made an error, because it is responsible to the investors, not the officials," Zhang said. "If the company did not inform investors of the mistake via a formal statement, it should be considered as having withheld information."

Efforts by the Global Times to contact the CSRC for comment were unsuccessful by press time.

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