China fines brokerage firm $85 million
A record $85 million fine was what one of China’s largest securities firms got on Friday. Its former CEO, Xu Haoming, will be banned for life from the securities industry. He resigned last week after the incident. This punishment is a result of computerized trading errors resulting in Chinese stock prices having erratic and wild swings just two weeks ago.
Everbright Securities had buy orders resulting in a multibillion-dollar avalanche on Aug. 16. The event sent China’s main market index upward some 6.5 percent before falling back down at day’s end. A design flaw in Everbright’s computerized trading system is blamed for the problem by the regulators.
In addition to the fine, which is the equivalent of 523 million yuan, regulators will seize 87.2 million yuan, which is the equivalent of $14 million U.S. dollars in what is considered improper trading profits, according to the state media. The state media indicated the information is being provided by China’s market regulator.
Beijing’s willingness to punish securities executives severely is reflected in the penalties. Actions by Chinese regulators are a contrast to what critics complain is reluctance by regulators in the U.S. and other countries. Chinese regulators are known for taking action when it comes to the pursuit of any form of misconduct by financial firm managers and executives.
This marks Everbright’s second issue with the regulators this year. Back in June, the firm said regulators were investigating the company’s handling of an initial public offering for another company. Regulators were looking at Chinese brokerages to see if they were scrutinizing the finances of companies closely enough before selling shares to investors.
China Securities Regulatory Commission spokespeople say investors are going to be permitted to sue Everbright for their possible losses, according to the China Securities Journal and state television and newspaper. As of the current time, there is no indication of the amount of the potential losses.
Bans that are very similar in nature are imposed on the general manager of the firm’s finance department, Xu’s assistant, and the director of computerized trading. The four are being fined $97,000 U.S. dollars, which is the equivalent of 600,000 yuan.
All four are accused of insider trading, providing misleading information and the violation of management rules, according to reports. No grounds are given for the insider trading charge.
Everbright is China’s fifth largest brokerage firm. It has also been ordered to stop trading for its own account. They’ve also suspended new business applications.
On Aug. 16, the incorrect orders caused the trading volume to spike more than 50 percent above the previous day’s level. The firm’s orders totaled 23.4 billion yuan, which is the equivalent of $3.7 billion U.S. dollars, and completed transactions totaled 7.3 billion yuan, or $1.2 billion U.S. dollars.
Although the firm asked that the trades to be canceled, the Shanghai Stock Exchange said transactions completed would be cleared as usual, according to the China News Service.
Everbright is part of the state-owned China Everbright Group. The company also controls banks and other businesses that are financial in nature. Everbright Securities raised $1.6 billion back in 2009 when it sold a portion of its equity to some private investors.