Court accepts Everbright's case against watchdog

Beijing First Intermediate People's Court accepted and registered on Tuesday a case in which Yang Jianbo, former general manager of the strategy department of Everbright Securities Co Ltd, filed a suit against the Chinese securities watchdog.

The court agreed to accept the lawsuit filed against the China Securities Regulatory Commission by Yang, former head of a trading unit at the Chinese brokerage, who is contesting the punishment he received for alleged insider trading.

Yang and three colleagues were banned for life from the securities industry and fined 600,000 yuan ($99,000) each by the commission in August after an investigation determined they had committed insider trading.

Yang's lawyer, Li Jiang, a partner at the Beijing-based Zhong Zhao Law Firm, submitted a complaint to Beijing First Intermediate Court on Feb 8.

The commission found that after a computer malfunction during morning trade on Aug 16, which caused Everbright to take a 7.27 billion yuan long position on a commonly traded exchange-traded fund, Yang and his colleagues committed insider trading by partially unwinding that position in afternoon trade without properly disclosing the original trading error.

Yang claims the existence of a trading error doesn't qualify as inside information and that subsequent trades designed to unwind them were in line with the unit's normal hedging strategy, not an exceptional response to the mistaken orders.

In a regular meeting held last Friday, Zhang Xiaojun, a commission spokesman, said it had released its explanation about the Everbright Securities' case in two news conferences in August and November last year and there had been no further updates.

According to legal proceedings, a copy of the bill of complaint will be sent to the defendant - the commission - within five days after the court accepted the case. After that, the commission should provide its defense to the court within 10 days. The court will then send a copy of the bill of defense to the plaintiff within five days. The court should make its first trial decision within three months as soon as the case is registered.

"I have never doubted whether the court will accept my suit or not because the facts are mostly known to the general public. I believe I will get a just result," said Yang.

Two software bugs, one in the trading system created by an outside provider and the other in Everbright's arbitrage system, caused a trading error what mistakenly sent huge buy orders valued at 23.4 billion yuan on Aug 16. Of this, 7.27 billion yuan was transacted. The big buy order lifted the benchmark Shanghai Composite Index 5.96 percent in three minutes.

In an earlier interview with China Daily, Yang admitted the existence of the bugs but said it was wrong for the commission to classify Everbright Securities' case as insider trading. "This case and the business of the strategic investment department are all beyond the knowledge of the general public as well as the commission ," he said.

Yang Yifei, a lawyer with Beijing-based Zhong Zhao Law Firm, is one of the two attorney agents in Yang's case against the commission. He also agrees that the Everbright Securities case should not be determined as insider trading, saying it was just a mistaken buy order. He added members of the commission were at the company when the case incident occurred on Aug 16.

"According to the present Securities Law of the People's Republic of China and Administrative Regulations on Futures Trading, there is neither regulation nor rule equating the above two or an explicit definition of insider trading," he said.

The latest amendments to the Securities Law were made in 2005. The Everbright Securities case will help develop the maturity of the law. It will also prompt the commission to enforce its duties more carefully, said the lawyer.

The commission fined Everbright Securities a record 523 million yuan for the alleged infringement. The securities company's former president Xu Haoming, assistant executive Yang Chizhong and secretary of the board of directors Mei Jian resigned shortly after the case. Xu and Yang, together with Shen Shiguang, general manager of the accounting department, and Yang Jianbo were fined by the commission and banned from any work involving the stock exchange.

The net profit of Everbright Securities was 212 million yuan in 2013, down 78.79 percent year-on-year, with earnings per share dropping to 0.0622 yuan.