Error costs Everbright millions

According to the leader of the investigative department of the CSRC, the trading system, described as an innovative "high-frequency" trading program, one that makes a large number of trades in a very short time, had been used for fewer than 15 trading days. The brokerage only began designing it in June.

Everbright's strategic investment department had never been included in the company's internal risk control system. The flaws in the technology were not discovered because of insufficient testing, the CSRC said.

Huang Wei, the CSRC legal department's director-general and chief counsel, said on Friday that this is an "extreme"case scenario that had never before occurred in China's equity market, and it alerted the watchdog to the need for better laws and regulations.

"This year, one of our key tasks is to research and modify the Securities Law and prepare to create a Futures Law," Huang said.

To date, there has been no law or regulation specifically dealing with high-frequency trading.

Huang explained that Everbright was not found to have manipulated the market because there was no evidence that employees had acted with the intention of making a huge gain through the buy orders.

Song Yixin, a lawyer from Shanghai Xinwang Wenda Law Firm, suggested building a mechanism in stock exchanges that can immediately stop trading when abnormal signals come out.

He also called on Everbright to set up a special fund that can be used to compensate investors.

As earlier reported in the media, every shareholder who owns Everbright's stock could have lost 4,160 yuan on average on the first day of trading after the incident.

According to the CSRC, investors who suffered losses from the incident can sue for compensation.

"It's good news for the stock market, because the CSRC's quick action showed its determination to keep a tight lid on on illegal trading, which can better protect investors' interests," said Gui Haoming, chief analyst of the Shenyin Wanguo Securities Co.

Everbright Securities, a unit of State-owned China Everbright Group and the seventh-largest brokerage by assets, had net income of 810 million yuan in the first half, a 2.2 percent decrease from the same period of last year.