Everbright Securities Co. (601788) plunged to the lowest since its shares started trading in 2009 after China’s securities regulator imposed a record penalty on the broker for insider trading and two more executives resigned.
The country’s seventh-largest brokerage by market value declined by the 10 percent daily limit to 9.06 yuan at today’s opening in Shanghai, after trade was suspended on Aug. 30, and stayed at that level through the 11:30 a.m. break. The Shanghai Composite Index (SHCOMP) fell 0.1 percent. The stock has slid 36 percent this year.
The 23.4 billion yuan ($3.8 billion) of erroneous stock purchase orders that roiled China’s markets on Aug. 16, and later trades to offset the mistake, led to Everbright being barred from most proprietary trading, lifetime bans from the securities market for four executives and the resignation of the president. The regulator also imposed 523 million yuan in fines and confiscation of illegal gains at the end of last week.
“Everbright still faces the risk of a rating downgrade and investor lawsuits,” Zhao Xianghuai, a Shanghai-based analyst at Guotai Junan Securities Co. wrote in a research note published today. “Investors may be seeking as much as 2.7 billion yuan in compensation. Its other operations, such as asset management and investment banking, may be suspended.”
State-controlled Everbright committed insider trading by selling exchange-traded funds and index futures before telling the market it had made erroneous trades, the China Securities Regulatory Commission said. Assistant President Yang Chizhong and Board Secretary Mei Jian resigned, Everbright said yesterday in statements to the Shanghai stock exchange.
The fine marks a “vivid footnote” to the regulator’s pledge to crack down on misconduct, the China Securities Journal wrote in an editorial today. Strict enforcement should be the norm of the nation’s capital market and the penalties on Everbright have set the benchmark, the state-controlled newspaper wrote.
President Xu Haoming, one of the four to receive a lifetime ban, resigned Aug. 22 and the brokerage suspended Yang Jianbo, the head of its proprietary trading business. The firm estimated it lost 194 million yuan on the trades, based on Aug. 16 closing prices, and said the figure may change.
Everbright’s proprietary trading business, excluding fixed income, has been halted and the CSRC will also suspend reviews of any new businesses, the regulator said.
The watchdog’s investigation into the erroneous trades was its second probe of Everbright this year. The CSRC in June began scrutinizing the brokerage in relation to Henan Tianfon Energy-Saving Panel Science & Technology Co.’s initial share sale application, which the regulator said contained falsified information. The CSRC said July 19 it had concluded field investigation work and passed the case to its administrative penalties commission.
Everbright Securities is controlled by state-owned China Everbright Group, which has businesses from banking, insurance and asset management to tourism and property development.
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