* Accidental buy orders lifted Shanghai Composite, CSI300
Index on Friday
* Everbright forced to build huge short positions in index
* Incident comes at a time when China trying to revive
(Adds mistaken bond trade on Monday morning)
By Lu Jianxin and Kazunori Takada
SHANGHAI, Aug 19 (Reuters) - China's Everbright Securities
will sell some of its securities holdings to help
cope with a possible funding crunch after a glitch in the
brokerage's trading system led to its accidental purchase of
more than $1 billion of mainland shares.
The China Securities Regulatory Commission (CSRC), which
will launch a formal investigation into Everbright, has barred
the brokerage from selling the shares for the next three months.
The mistaken trades on Friday sparked a flash rally that
created and then wiped out roughly $100 billion worth of share
value on the CSI300 Index in the course of a single
day, Reuters calculations show. The CSI300 tracks the largest
listed firms in China.
Everbright, which incurred a trading loss of 194 million
yuan ($31.73 million) due to the computer glitch, potentially
faces demands for compensation from investors who lost out from
the market rally triggered by the trading fluke.
"We will use our own funds, disposal of securities assets
and utilise other financing channels to resolve any future
liquidity problems," the brokerage's board secretary Mei Jian
told Reuters in an interview on Monday.
Mei added that Everbright will adopt an "earnest and
positive" attitude towards any possible compensation demands.
While there was no indication that the systems glitch
involved other brokerages, the Chinese state media is saying the
trading fluke is symptomatic of broader market ills.
The official China Securities Journal said on Monday the
malfunction has exposed major flaws in how Chinese stock
exchanges are run, alleging that there are defects in bourses'
Compounding Everbright's woes, the brokerage executed a
mistaken bond trade on Monday morning due to human error.
The malfunction in Everbright's internal propriety trading
system on Friday comes at a time when China is trying to revive
investor confidence in its sagging stock markets. This does not
bode well for corporates looking to raise funds through share
Many Chinese firms are under increasing funding pressure as
economic growth indicators in China show signs of stuttering.
But Beijing is uncomfortable with loading up the banking system
with more risky loans - or with pushing such firms into the
country's so-called shadow banking system where non-bank lenders
price credit at far higher levels.
The Shanghai Composite Index closed 0.8 percent
higher on Monday, while the CSI300 was up 1.2 percent.
"It is unclear how strong the impact of the Everbright
Securities trading error will be on wider market sentiment,"
said an analyst at Cinda Securities Co Ltd, who spoke
anonymously as he is not authorised to talk to the press.
"From today's stock performance, we can see that there
hasn't been a large fall in share prices in the market. If it is
a one-off accident, then it won't have an impact. But if the
results from the investigation result in new stricter regulatory
measures, then this may have more of an impact."
He also said it was unclear whether the development would
impact plans to restart initial public offerings (IPOs) later
this year, or the proposed launch of a government futures
trading market, once said to be scheduled for August.
Since late last year, China has halted all IPO approvals as
it rewrites listing rules to improve transparency as part of
efforts to boost the sagging market. But regulators have come
under pressure from companies to allow new listings to resume,
having already given way and permitted a few select firms to
conduct secondary issuances.
Everbright Securities on Friday placed unintended buy orders
totalling 23.4 billion yuan, of which nearly a third was
Because of a T+1 system in China's stock market, the
brokerage could not sell shares it bought on the same day, which
forced it to build huge short positions in the index futures
market, totalling 7,130 lots, according to the brokerage.
The China Financial Futures Exchange (CFFEX) said late on
Sunday that it has slapped restrictions on the number of new
stock index futures positions that the brokerage can build.
Many persons claiming to be Everbright clients have
complained online that while Everbright's trading mistake would
come at their expense, the profits booked off the short hedging
would not be redistributed fairly.
Everbright said on Monday that any profits yielded from the
massive index short positions it erected on Friday to offset the
impact of its accidental purchases would be dealt with legally.
Trading in the yuan-denominated shares of China's
fifth-biggest brokerage has also been halted since Friday
afternoon on the discovery of the trading error. Trading will
resume on Tuesday, the company said.
The brokerage's A-shares changed hands at 12.12 yuan each at
midday on Friday, up 6.69 percent in line with the market spike,
before trading was suspended.
Hong Kong-listed China Everbright Ltd (CEL), which
is owned by the same parent company China Everbright Group and
holds around 33 percent of Everbright Securities, ended up 0.2
percent on Monday.
($1 = 6.1150 Chinese yuan)
(Additional reporting by David Lin, Pete Sweeney and the
Shanghai Newsroom, and Vikram Subhedar in HONG KONG; Editing by