Local team implicated in China brokerage mishap
By Ted Chen,The China PostTAIPEI, Taiwan -- Both sides of the strait are rife with rumors that a recent blunder by a mainland-based brokerage firm may have been caused by faulty computer investment modeling data provided by a Taiwanese team employed by the company.
August 20, 2013, 12:02 am TWN
Market orders nearing 7 billion yuan by Everbright Securities (光大證卷) flooded the Shanghai Stock Exchange A Shares Index on Friday, causing a 5.96-percent surge in the index at 11:05 a.m., representing an unfounded rise of 340 billion yuan in market value and confounding traders worldwide.
China Security Regulatory Commission launched an investigation into the matter. Preliminary findings indicate that the glitch was the result of flaws in the design of the company's automated trading system, which was triggered to exact the immense amount of buy orders. The regulators have ruled out human error as the cause of the incident.
The regulator also denied Everbright's request to retract its erroneous market orders, with the company likely to absorb losses of 200 million yuan, or NT$1 billion.
In response, the Taiwan Securities Association has denied the involvement of any local entity in the blunder, while protesting the potential harm caused to the reputation of Taiwan-based securities firms. Citing records provided by Taiwan's financial regulators, the association stated that there is no evidence of any ongoing collaborative ventures or dealings among securities companies on different sides of the strait. In addition, the association stated that program trading systems design is not part of services offered by securities brokerage companies in Taiwan.
Taiwan's securities companies stated that by convention, trading of stocks in Taiwan take place in units of 1,000 shares, as opposed to 100 shares in China. The firms said that the blunder may have resulted from a slip while a trader was keying in orders, such as inputting 100 instead of 1 for an order of 100 shares, adding that it is farcical to blame the outcome of human error on faulty systems design.
Industry commentators also stated that the problem may stem from Everbright's lax internal control protocols. Industry standard systems have checks and controls in place to prevent the completion of anomalous trades that exceed authorized limits. Commentators also suspect that the rumors may have been released to blur growing scrutiny of the blunder.
Meanwhile, mainland media have raised five allegations relating to the incident. By Everbright's account, the anomalous trade was detected at 11:07 a.m.; however, it did not file a report with regulators until 2 p.m., while the investing public in China was not made knowledgeable of the incident until 2:30 p.m. In the meantime, the company made a number of hedging trades in an attempt to salvage the situation, without the public knowing.
In addition, the market is expected to be impacted by Everbright's dumping of the 7 billion yuan worth of shares that it bought. There is also concern about whether investors who bought shares at the height of Friday's inflated index level will be compensated, and whether the blunder may be potentially repeated by other firms with faulty systems design and lax protocols.