Everbright to sell assets amid trading fluke fears
By Lu Jianxin and Kazunori Takada, ReutersSHANGHAI--China's Everbright Securities will sell some of its securities holdings to help cope with a possible funding crunch after a glitch in the brokerage's trading system led to its accidental purchase of more than US$1 billion of mainland shares.
August 20, 2013, 12:02 am TWN
The China Securities Regulatory Commission (CSRC), which will launch a formal investigation into Everbright, has barred the brokerage from selling the shares for the next three months.
The mistaken trades on Friday sparked a flash rally that created and then wiped out roughly US$100 billion worth of share value on the CSI300 Index in the course of a single day, Reuters calculations show. The CSI300 tracks the largest listed firms in China.
Everbright, which incurred a trading loss of 194 million yuan (US$31.73 million) due to the computer glitch, potentially faces demands for compensation from investors who lost out from the market rally triggered by the trading fluke.
“We will use our own funds, disposal of securities assets and utilize other financing channels to resolve any future liquidity problems,” the brokerage's board secretary Mei Jian told Reuters in an interview on Monday.
Mei added that Everbright will adopt an “earnest and positive” attitude towards any possible compensation demands.
While there was no indication that the systems glitch involved other brokerages, the Chinese state media is saying the trading fluke is symptomatic of broader market ills.
The official China Securities Journal said on Monday the malfunction has exposed major flaws in how Chinese stock exchanges are run, alleging that there are defects in bourses' warning mechanisms.
Compounding Everbright's woes, the brokerage executed a mistaken bond trade on Monday morning due to human error.
The Shanghai Composite Index closed 0.8 percent higher on Monday, while the CSI300 was up 1.2 percent.
“It is unclear how strong the impact of the Everbright Securities trading error will be on wider market sentiment,” said an analyst at Cinda Securities Co. Ltd., who spoke anonymously as he is not authorized to talk to the press.
“From today's stock performance, we can see that there hasn't been a large fall in share prices in the market. If it is a one-off accident, then it won't have an impact. But if the results from the investigation result in new stricter regulatory measures, then this may have more of an impact.”
He also said it was unclear whether the development would impact plans to restart initial public offerings (IPOs) later this year, or the proposed launch of a government futures trading market, once said to be scheduled for August.
Since late last year, China has halted all IPO approvals as it rewrites listing rules to improve transparency as part of efforts to boost the sagging market. But regulators have come under pressure from companies to allow new listings to resume, having already given way and permitted a few select firms to conduct secondary issuances.