China fines brokerage $85M for stock market chaos

BEIJING (AP) — One of China’s biggest securities firms was fined 523 million yuan ($85 million) on Friday and its former CEO was banned from the industry after computerized trading mistakes caused wild swings in Chinese stock prices.

The penalty for Everbright Securities was the most severe punishment imposed to date on a Chinese securities firm, the government’s Xinhua News Agency said.

Everbright was blamed for wild price swings on China’s stock market on Aug. 16. Regulators said a design flaw caused its computerized trading system to submit a multibillion-dollar avalanche of mistaken orders. That caused stock prices of some of China’s biggest companies to surge by the maximum 10 percent daily limit before dropping back.

A spokesman for the China Securities Regulatory Commission said investors will be allowed to sue Everbright over losses blamed on the price swings, according to reports by state television, the China Securities Journal and other state media. There has been no word on the size of potential losses.

The penalties reflected 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 managers of major financial firms.

Everbright’s former CEO, Xu Haoming, who resigned this week, was banned for life from the 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 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 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 on its website that any transactions that already had been completed would be cleared normally.

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