China probes 'fat finger' trade

HONG KONG (CNNMoney)

Analysts were puzzled by unusual market activity around mid-day on Friday, when the benchmark Shanghai Composite jumped 6% in just a few minutes. When no obvious explanation for the sudden move was found, many observers speculated that a fat finger trade had been executed.

Attention focused on state-controlled brokerage China Everbright Securities, which announced late Friday that it had experienced problems using its trading system.

Everbright confirmed its role over the weekend as the company issued an apology to investors, saying that it would proactively work to rectify the situation. The company now faces the possibility of significant penalties and a loss of prestige.

The China Securities Regulatory Commission said it had opened an investigation. A systems glitch, not human error, likely led to the trading spike, the regulator said in a statement.

The CSRC said that Everbright's trading system mistakenly placed 23.4 billion yuan of buy orders on Friday, 7.27 billion yuan of which were executed.

The firm sold 1.85 billion yuan in ETFs, and executed thousands of futures short sales. The company said that it won't immediately sell off all its accidental purchases.

Everbright's proprietary trading activities have been frozen by the CSRC. The company is further prohibited from creating new stock index futures positions, according to the China Financial Futures Exchange.

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Everbright's shares remain suspended in Shanghai, but are expected to resume trading on Tuesday.

The trading glitch is the "first example since China's capital market was established," according to the CSRC.

Related story: China adds fewer millionaires as economy slows

Shanghai isn't the only major market to experience a flash move in recent years.

The Dow Jones industrial average plunged nearly 1,000 points, briefly erasing $1 trillion in market value, in 2010. And in April, the Dow quickly plunged 140 points after hackers managed to send an incorrect tweet about an emergency at the White House.

First Published: August 19, 2013: 12:29 AM ET

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