Everbright pain seen as industry gain as investors look to bright side

Mon Sep 2, 2013 5:14am EDT
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By Pete Sweeney

SHANGHAI (Reuters) - Chinese brokerage Everbright Securities 601788.SS has been hit by falling shares, record fines and executive resignations following a massive trading scandal, but investors are hopeful the incident will herald better risk controls.

Shares of Everbright Securities slumped 10 percent in Shanghai on Monday, their daily limit. However, shares in other mainland brokerages including CITIC Securities (600030.SS: Quote), Haitong Securities (600837.SS: Quote) and Huatai Securities (601688.SS: Quote) rose as investors shrugged off concerns the Everbright scandal would have knock-on effects.

On August 16, an apparent combination of software and human error at Everbright caused an unintended placement of buy orders worth 68.6 billion yuan ($11.2 billion) to the Shanghai stock exchange, setting off a short-lived 6 percent jump in the Shanghai Composite Index .SSEC and an ensuing "flash crash."

"It was very quickly identified as to what the problem was, where it came from and exactly trades were involved, and it was very quickly dealt with," said Olivier D'Assier, Asia Pacific managing director for stock index developer Axioma in Singapore.

"As long as the regulators' reaction to this is fair and transparent in terms of reversing the errors and penalizing those who committed them, I think the overall trust in the system remains."

Analysts also said that while the scandal did raise questions about risk control mechanisms at the Shanghai Stock Exchange, investors appeared to understand such errors are not exclusive to China and have happened in developed markets too.

"This is a good thing," said Cao Xuefeng, head of research at Huaxi Securities in Chengdu, positive that the Shanghai Stock Exchange will implement better risk controls to prevent repetitions of the trading glitch.

BAD DAY ON THE MARKET   Continued...

A department office of Everbright Securities is pictured in Beijing, August 16, 2013. REUTERS/Jason Lee