China fines brokerage $85M for stock market chaos

China fines brokerage $85 million, bans 4 executives after trading errors cause market chaos

Associated Press
China fines brokerage $85M for stock market chaos
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FILE - In this Aug. 19, 2013 file photo, a man walks past the sign of Everbright Securities Ltd. in Shanghai. Everbright, one of China's biggest securities firms, has been fined $85 million and four executives banned from the industry after computerized trading mistakes caused wild swings in Chinese stock prices. (AP Photo/Eugene Hoshiko, File)

BEIJING (AP) -- One of China's biggest securities firms was fined a record $85 million on Friday and its former CEO was banned from the industry after computerized trading mistakes caused wild swings in Chinese stock prices two weeks ago.

A multibillion-dollar avalanche of buy orders from Everbright Securities on Aug. 16 propelled China's main market index up 6.5 percent before it fell back and ended the day down. Regulators blamed a design flaw in Everbright's computerized trading system.

In addition to the 523 million yuan ($85 million) fine, the highest ever imposed on a Chinese brokerage, regulators will seize 87.2 million yuan ($14 million) in improper trading profits, state media reported, citing China's market regulator.

The penalties reflect Beijing's willingness to punish securities executives severely, in contrast to what critics complain is reluctance by regulators in the United States and elsewhere to pursue misconduct by managers of major financial firms.

The latest case is Everbright's second run-in with Chinese regulators this year. In June, it said regulators were investigating its handling of an initial public offering for another company. That came as the government was looking at whether Chinese brokerages were examining companies' finances closely enough before selling shares to investors.

A spokesman for the China Securities Regulatory Commission said investors will be allowed to sue Everbright over possible losses, according to state television, the newspaper China Securities Journal and other outlets. There has been no word on the size of potential losses.

Former CEO Xu Haoming, who resigned last week, was banned for life from the securities industry.

Similar bans were imposed on the general manager of the firm's finance department, an assistant to Xu and the head of computerized trading. The four also were fined 600,000 yuan ($97,000) each.

The four were accused of insider trading, providing misleading information and violation of management rules, the reports said. They gave no grounds for the insider trading charge.

Everbright, China's fifth-largest brokerage, also was ordered to stop trading for its own account and applications to launch new business lines will be suspended, the news reports said.

The incorrect orders caused trading volume on Aug. 16 to spike to more than 50 percent above the previous day's level.

Everbright's orders totaled 23.4 billion yuan ($3.7 billion), according to the CSRC. It said completed transactions were almost 7.3 billion yuan ($1.2 billion).

The brokerage asked to cancel the trades, the government-run China News Service reported earlier. However, the Shanghai Stock Exchange said any transactions that already had been completed would be cleared normally.

Everbright is part of the state-owned China Everbright Group, which also controls banks and other financial businesses. Everbright Securities raised $1.6 billion in a 2009 by selling a portion of its equity to private investors.

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