“I Don’t Always Place High Frequency Trades, But When I Do,

I Prefer Them Not to Flash Crash/Smash the Market.”

We imagine that a few folks in Shanghai could have used a few cases of Dos Equis last night…

A little over one year after Knight’s runaway testing algo that disrupted US markets, as well as cost the firm $450 million and its independence, China’s Everbright Securities has encountered a similar problem. Apparently a runaway HFT algo in its arbitrage division ran amok, causing trading volume to surge 80% on the Shanghai Stock Exchange (SSE), as well as spike the market upwards nearly 6% in 2 minutes, before it reverted. It was the biggest price spike in over 4 years.

This Bloomberg article gives some more detail, including this quote by Chen Xingyu, a Phillips Securities Analyst in Shanghai:

“I haven’t seen this kind of error in at least the past 10 years,” Chen Xingyu, a Shanghai-based analyst at Phillip Securities Group, said by telephone today. “This is an extraordinarily big loophole, which doesn’t just show defects in Everbright, but also the A-share market.”

Ironically, there was little comment from the China Securities Regulatory Commission, other than an anonymous official claiming that they are monitoring the situation. It should be noted that one of the owners of Everbright, is in fact the State.

History Repeats. Enjoy your weekend!