Shanghai bourse defends handling of Everbright glitch

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Shanghai bourse defends handling of Everbright glitch

(Xinhua) 08:23, August 26, 2013

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The Shanghai Stock Exchange, the largest bourse in China by market capitalization, has defended its handling of a recent incident in which transaction sums were incorrectly inputted for Everbright Securities, misleading investors.

The exchange said on Sunday that its reaction to the incident on Aug. 16 was in accordance with regulations and precedents.

"Both the price and sum of the purchase orders placed by Everbright Securities during morning trading on Aug. 16 were within the stipulated range of the exchange, so we didn't issue any warning to the market," it said in an online media briefing via its Weibo, or microblog, account.

Regarding the glitch being caused by a mistake in inputting transaction data, the exchange upheld its decision to not issue any warning by citing precedents such as an incident involving Taiwan Fubon Securities in 2005, when a trader mistakenly inputted an 80 million-yuan order as 8 billion yuan.

Erroneous trading by Everbright Securities on Aug. 16 caused a 5.96-percent spike in the benchmark Shanghai Composite Index in about three minutes.

Investors have been dissatisfied with the exchange's failure to alert them quickly to the glitch as they chased rising stocks and suffered great losses subsequently when prices tumbled.

Responding to the question whether circuit-breaker rules will be introduced in battling major market fluctuations, the exchange said it will further research them as they are useful in creating a period of time for the market to calm down and digest information in the face of volatility.

Circuit breaker rules are applied by European and American markets to temporarily suspend trading during a volatile period when share prices touch either the high or low price limit.

China's two bourses, the other being the Shenzhen Stock Exchange, employ a mechanism under which share prices can neither rise nor fall by more than the daily cap of 10 percent.

The exchange said it will also step up its research on the viability of introducing a T+0 same-day settlement scheme for stock investors as this system can "better protect the interests of medium and small investors" and is "more fair."

The T+1 settlement scheme currently employed by the stock market mandates that investors can only sell stocks no sooner than one trading day after their purchase.

Sunday's explanations from the exchange generated largely negative responses from netizens, most of whom think the exchange could have done more to warn investors of possible risks.

"The exchange is finding excuses through others' faults in failing to issue warnings," said a Weibo user with the screen name "Youyudeshengling."