$1 Billion Fat Finger At "Burnt Head Rotten Brow" Firm Sent Chinese Stock Market Up 6%

For those who missed it, this is what China (and global) traders saw early this morning:

As it turns out, just as we had suspected, this 6% move in the Chinese A-shares index, was nothing more than a CNY7 billion (just over $1 billion) fat finger in the "arbitrage system" of Everbright securities. And just what system is that - if the market is about to sell off do a smash-the-open to kill all downward momentum, and as for the losses from the trade, well there is a PBOC to foot the costs? Also, if all it takes to move a multi-trillion stock market is just a $1 billion "fat finger", imagine what $85 billion per month would do...

As Marketwatch reports, multiple traders and media accounts cited an unintended “fat finger” execution of a 7 billion yuan ($1.13 billion) order at a local brokerage as the cause for the sudden spike in Shanghai stocks. The Shanghai Stock Exchange Friday afternoon confirmed that the investment strategy department at Everbright Securities Co. had encountered a problem in its arbitrage system, according to a Xinhua news report.

The FT adds:

A Chinese brokerage has launched an internal investigation of its trading systems, just hours after a suspected fat finger trade caused a spike in the country’s main stock market.


Everbright Securities said in a statement to the Shanghai stock exchange on Friday afternoon that it had experienced some problems with its internal trading systems earlier in the day and was looking into the cause.


Shares in the company were suspended in Shanghai, while those of China Everbright International, a Hong Kong-listed entity owned by the same parent, dropped as much as 8.5 per cent.


China’s stock regulator said on Friday that it was also investigating the reason for the volatility, Reuters reported.


A spokesman for China Everbright Bank, another subsidiary of Everbright Securities’ parent company China Everbright Group, said he had no information on the situation at the brokerage.


You may not be able to reach them over there since they must be ‘burnt head rotten brow’ [a Chinese phrase meaning bruised and battered] right now,” the spokesman said.

“Chinese markets turned on a dime and went crazy, which was interesting just as everyone was settling into a quiet afternoon. ... The rumor and intrigue that centered on the move was huge, with dealers phoning around the houses trying to work out exactly what occurred,” said IG Markets chief markets strategist Chris Weston.

“Whatever the outcome, these sorts of moves do not help confidence,” he said.

Actually that is completely incorrect: since there is no confidence in markets any more, what it does to market confidence is irrelevant. However, since market levels are the only policy vehcile left for central-planners, it does not matter how the [S&P/Nikkei/FTSE/EuroSTOXX/SHCOMP] closes higher, as long as it closes higher. Period.

Because if one really wants to see panic, then wait until "confidence" in central planning is shaken. That's when the chip really fall.