Fat Fingers: Everbright
Fingers have two things which are common to them all over the world, wherever we come from. They are all different, which at least is one thing in common. Then they are prone to being fat and clumsy whether that be from New York to Hong Kong; especially in the financial world. There was one such individually gorged finger that pushed the wrong button in Hong Kong on August 16th 2013 and the Chinese Securities Regulatory Commission has just issued a fine worth $85 million (523 million Renminbi) to a brokerage firm that resulted in a short burst of trading, which meant there was a 6%-rise in the Shanghai Composite. It ended the day down by 0.6%, however. Everbright Securities, thefat-fingering brokerage firm committed “a number of legal and regulatory violations” according to the China Securities Regulatory Commission, as reported by the state-run news agency, Xinhua. Beyond the fine, the brokerage firm will be banned from all proprietary trading (betting its own money) for a three-month period and there are also four members of staff that have been banned from trading for life. If the USA doesn’t watch out, the People’s Republic of China will soon be abiding by the law more than it has ever intended to let people believe.
The Shanghai Composite suddenly jumped by 5.96% at 11.05 am for a very brief two-minute period. Denial is always the very best line of attack when something hits the fan usually and is what normally happens at any rate. It’s an old technique that politicians are well acquainted with and that spin doctoring has taught them for many moons now. Both banks and energy companies saw their shares skyrocket to the limit that is imposed on daily trading that currently stands at 10%. 16 companies out of the 20 largest in the country surged on that morning of August 16th. There was no apparent reason. Everbright saw its shares get suspended on the very same day as it was discovered that they were at the origin of the problem. They had, according to statements issued, internal technical problems. The Chinese press alluded to the fact that a whopping Chinese fat-finger had input the wrong number, or committed anoolong in Chinese. Sounds like a cup of chai to me, usually to be stored in a cool dark place. I wonder if that’s where the four traders are right now. Probably in hot water or something along those lines.
Everbright was suspended from trading on the very same day. The 5.96%-increase had been caused by the traders that had made buy and sell orders that were incorrect and to the value of $3.8 billion. Although, it certainly begs the question as to how on earth four people can have fat fingers at the same time. It must really be in the water, I guess.
The downside was that Everbright Securities had successfully executed trades that were worth 7.3 billion Renminbi. The market did an about-turn however and dropped immediately after the two-minute period causing a loss to the tune of 194 million Renminbi. They had originally intended to place an order for 24 stocks, with an automatic repeat on the purchase. The error in the computer system resulted in buying all stock that had 24 different exchange traded funds. Everbright therefore purchased to the value of 68.6 billion Renminbi. 7.3 billion Renminbi went through before it was discovered and they were suspended from trading.
There has never been such a high level of fine that has been slapped on a company in the past in China for fat-finger trading. The company was given a fine of 523 million Renminbi; they only had a net profit of 810 million Renminbi for this first half year. Fat fingers can do a lot of damage, but it seems that things are really going topsy-turvy these days in the world. The US spies on us all. The National Security Agency respects no civil rights that should maintain our privacy and the Chinese are now being tough on people that are playing with the financial markets. What is happening to this world; where the West was synonymous with good and kind and the East was bad and Communist? Well, they are still Communist but the West has gone into state surveillance and fascist overtones of controlling its people. Everbright Securities dropped by 8.5% as a result.
Trading volumes increased on August 16th by 53% and that was the highest surges since 2009. But, it is true to say that because the Chinese equity market is fueled by retail investors it is open to panics that are driven by rumor alone. Perhaps the fine given to Everbright is an attempt to show that the market is controlled by the state and that it can be relied upon.
Computer glitches, which was the original reason that Everbright had provided as to why the spike had occurred, are always a good source of an excuse. It wasn’t me, it was only my PC. But, Everbright apparently exploited the situation by bagging on the fact that when discovered the Shanghai Composite would fall. They subsequently off-loaded shares and made a profit, until banned from trading. Nothing was known for an hour allowing Everbright to trade on the knowledge (that only they had) as to the cause of the spike in the Shanghai Composite. Panic all around, but an apparent trading calm at Everbright for a cool hour of trading. Traders ended up taking advantage of the fact that they knew what was happening before reporting it. The Shanghai Composite closed for a lunch break at 11.30 am and when it resumed business at 1pm they shorted 6, 240 stock index future contracts. ThePresidentof Everbright Xu Haoming has resigned as a consequence. The company has also been banned from getting any new business activities approved by the Chinese administration for the moment. This will mean that it will not be able to expand outside brokerage.
A statement issued by the company said: “brings negative impact to the company’s brand reputation and market image”. But, it seems that people will do anything these days. Do they really think that they won’t get caught? We had better as the NSA and President Obama right now for their own views on this particular question.
People who work on financial markets would get away with things much better if they (instead of having obese fat fingers) just had podgy porkers.
Everbright Securities is one of the biggest securities brokerage firms in terms of assets in China. It is owned by the parent company China Everbright Group and was founded in 1996. It was launched on the Shanghai Composite in2009 (capital raising of $10.9 billion Renminbi).
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