The securities watchdog in China had been forging ahead with the rules that let brokers invest in complex financial products. The watchdog had strengthened its campaign after an unprecedented USD3.8 billion trading error shook markets.
The China Securities Regulatory Commission (CSRC) had ended an 18 year hiatus on trading of Treasury bond futures in the last six weeks. The CSRC said it would allow more brokerages borrow stock for a short period of selling. The measures were disclosed after misplaced bets were caused by faulty software at Everbright Securities Co. last August 16. This had caused the wildest swings in Shanghai shares from 2009 and the first of its trading error kind in the country.
Policy makers in China had permitted brokerages including Shanghai based Everbright to offer clients margin trading and short selling of borrowed stock since 2008. This was after the nation had been seeking to improve allocation of capital as well as betting on derivatives with their own funds. Meanwhile, CSRC Chairman Xiao Gang showed no loss of appetite for risk trading despite the suspension for most proprietary trading.
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