Regulatory flaws expose weakness in market rules

HOMS system, a little-known securities trading software until recently, has been allegedly viewed as the prime culprit for the dramatic stock market slide in the past few weeks, raising questions of whether the country's financial regulation is matched with its high levels of technology and financial innovation.

Leveraged funds worth trillions of yuan had flown into the equities market through the HOMS system, which fueled a frenetic bull run, and triggering the recent 30 percent plunge due to massive deleveraging and liquidation of margin accounts.

The market turmoil has already prompted the regulator to take tough steps toward cleaning up gray-market margin lending through non-brokerage channels that allow investors to borrow up to 10 times their initial capital to trade stocks through the HOMS system.