China today ordered a probe into a company's "abnormal deals" after a suspected "computer glitch" sent stock markets into a tizzy.
The China Securities Regulatory Commission (CSRC) said it was probing abnormal deals by Everbright Securities during morning trading.
CSRC and the Shanghai Stock Exchange (SSE) are jointly investigating a large number of purchase orders sent from the Everbright Securities' trading account, a CSRC spokesman told a news conference.
The stock market witnessed its greatest fluctuation in six years today. Stock analysts said the incident demonstrated the existence of loopholes in the trading process used by Chinese brokerages.
In late morning trading, the benchmark Shanghai Composite Index spiked by around 100 points, or 5 per cent, within two minutes, with turnover totalling 7.8 billion yuan (USD 1.27 billion).
Early gains for Chinese shares were almost erased during afternoon trading, with the Shanghai Composite Index closing down 0.65 per cent.
Everbright Securities said in a statement to the SSE that its investment strategy department encountered a problem in its arbitrage system while operating with its own funds during morning trading.
Following the abnormal deals, there was market speculation that Everbright Securities may have applied to cancel all morning trades.
Mei Jian, secretary of Everbright's board of directors, denied rumours of a possible trade cancellation application, adding his company has accepted SSE's decision.
He denied that the company's internal simulated trading system was used in real trading, resulting in an abnormally large amount of purchasing orders. He said the firm's arbitrage system will not be used again till the company finds out how it failed.
Mei said Everbright uses its own funds for trading and the incident did not cause any losses for clients. "We are probing the case and have seen some developments. But it will take more time to come to a correct and complete conclusion," he said.
SSE said in the afternoon that all Friday trading will go through the normal settlement and entrustment process.
A number of bank and oil shares, including the Industrial and Commercial Bank of China and PetroChina, rose near the daily limit of 10 per cent, state-run Xinhua news agency reported.
Trading of Everbright shares, which rose 6.69 per cent in the morning, was suspended this afternoon.
A Howbuy Fund research team said China's regulatory body and institutional investors should strengthen risk control and management. They must not underestimate risks brought by small incidents in the financial market, it said.
