Aipeng Soo Beijing
Everbright Securities’s woes worsened yesterday as the brokerage was banned from proprietary trading after erroneous trades on Thursday that sparked the wildest Chinese stock swings in four years, and it added that it had mispriced a bond sale yesterday.
State-controlled Everbright Securities said on Sunday that it had placed 23.4 billion yuan (R38.3bn) of incorrect buy orders on Friday, prompting the three-month ban and a China Securities Regulatory Commission (CSRC) probe. The firm gave the wrong price for 10 million yuan of government bonds yesterday, it said on its website.
The ban is a further setback to a brokerage contending with falling profit and a CSRC probe into an initial public offering that it worked on, which forced it to delay a $1.3bn (R13.1bn) sale of its own shares.
The Shanghai composite index jumped from a loss of as much as 1 percent to a gain of 5.6 percent in two minutes on Friday after the erroneous orders, before erasing the gain. It was the index’s biggest intraday gain since March 2009.
“The consequences for Everbright Securities could be huge,” China Minzu Securities analyst Song Jian said. “This is a serious issue. This may also lead to the cleansing of the internal risk management systems at Chinese brokerages.”
Of the 23.4 billion yuan of buy orders, 7.27 billion yuan were transacted, the company said. Everbright had a mark-to-market loss of about 194 million yuan based on Friday’s closing prices, and the final value might change, the company said on Sunday.
The final trading loss could reach 300 million to 400 million yuan, Citigroup analyst Paddy Ran wrote in a note on Friday.
Everbright was China’s 12th-largest brokerage by revenue last year, data from the Securities Association of China show. China Everbright Group, the broker’s closely held parent, is led by chairman Tang Shuangning and supervised by China’s State Council. – Bloomberg