The abnormal spike that occurred on Shanghai’s stock exchange last Friday may lead to tighter controls on broker operations as a swift response from the regulators.
The Shanghai Composite Index rose by 5.96% within several minutes after the market opening on 16 August.
The China Securities Regulatory Commission (CSRC) announced that the culprit was Everbright Securities, the firm having undertaken a vast programme of buying that pushed 16 stocks up to their daily 10% limit.
Everbright Securities is now under investigation. The firm’s excuse has been to blame the purchases on errors in its arbitrage system.
As Trade Asia has recently reported, the heads of China’s exchanges have made public remarks about the obligation for local brokers to behave responsibly.
Market sentiment in China now infers that the CSRC will use this episode not only to find senior executives responsible, but as an excuse for a crackdown on broker activity in China. The CSRC said on Tuesday that it would hire another 600 regulators who would be assigned to futures and equities exchanges.
One penalty already enacted has been to restrict the number of futures positions that the brokerage can hold.
Indications are that investors who bought in after the market rose, ultimately made losses as the mini-rally fizzled out and the market ended lower on the day. The Shanghai Stock Exchange has refused to cancel any of the RMB 6 billion of buy orders.
The brokerage is a subsidiary of China Everbright Group, which the US authorities are investigating in respect of bribery allegations.