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China's top securities regulator is determined to improve market mechanisms and fill the gaps in the regulation system dealing with irregular transactions, after the unprecedented market chaos following Everbright Securities trading error three weeks ago.
After it decided on a final punishment for the securities company, the China Securities Regulatory Commission is reconsidering current regulations, which need to be improved, the commission's spokesman said on Friday.
Everbright Securities Co Ltd was given its punishment last week－it was fined 523 million yuan and four of the brokerage's executive managers were banned from the industry.[Photo/China Daily]
"We will launch official regulations soon to clarify the definition of 'irregular transaction', strengthen the management of the relevant transaction system, improve the pre-trading control system, establish a mechanism that can cancel mistaken deals, and launch an information disclosure system for irregular transactions," the spokesman said.
Analysts and market observers said that the current regulation system may not be able to prevent similar irregular transactions or ones caused by accidental technological flaws at a time when "creative" financial models - including high-frequency trading - are common practice among securities companies.
Three weeks ago, a bug in Everbright Securities' trading software generated 23.4 billion yuan ($3.79 million) worth of mistaken buy orders in the Shanghai Stock Exchange, and it finally completed transactions worth 7.27 billion yuan.
In response, the benchmark stock index jumped 5.96 percent within three minutes, which prompted many investors to buy stocks.
The securities company was given its punishment last week - it was fined 523 million yuan and four of the brokerage's executive managers were banned from the industry.
On Friday, Everbright Securities released a statement on its website saying that the trading error on Aug 16 caused 4.3 million yuan in losses.
"All the stock index futures that the brokerage bought that day to hedge risks have been closed by Friday," the company's statement said.
"After the incident, the company disposed of part of sellable financial assets that led to the big losses," the statement added.
Hu Yuyue, director of the Research Institution of Securities and Futures at the Beijing Technology and Business University, said that despite the brokerage's trading system flaws, the stock exchange's whole transaction mechanism and the CSRC's regulatory system also bear some responsibility for the ensuing market chaos.
"The current system allows securities companies to overdraw capital into investment accounts, which is the main reason why the huge orders were formed. That system should be stopped and we should build a risk isolation mechanism to prevent big mistakes," he said.