Better late than never

The Everbright Securities incident exposed the backward supervisory institutions and laws of Chinese stock market watchdogs, says an article of the Southern Metropolis Daily (excerpts below).

Erroneous trading by Everbright Securities on Aug 16 caused a 5.96 percent gain in the benchmark Shanghai Composite Index over three minutes.

The China Securities Regulatory Commission blamed the problems on design flaws in the firm's proprietary "strategy trading system".

It turns out that Everbright Securities does not have a risk management system at all for its strategy trading system.

According to CSRC, Everbright's programmers tried to represent the duplicate orders made by traders as an accident triggered by a system failure.

CSRC confiscated Everbright Securities' illegal revenue of 87.21 million yuan ($13.85 million) and fined it five times that revenue, totaling 523 million yuan, a record penalty issued by the stock market watchdog.

That CSRC charged Everbright for insider dealings misses the point. The heavy penalty should not be the end of the accident, which bears lessons for the Chinese stock market, supervision and legal frameworks.

In the past year, the Chinese government has broadened the range of business areas in which brokers are self-regulating. But the supervision institution has not kept pace with this.

Because of the lack of monitoring and the bigger market, the brokers tend to pay more attention to trades than risk management.

There are no relevant articles in China's Securities Law that relate to the Everbright incident.

CSRC must note the legal and institutional loopholes and backwardness exposed by the incident. The lawmakers must accelerate the revision of the Securities Law and the making of the Futures Law.