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China's Everbright braced for punishment over trading glitch

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Chinese brokerage Everbright Securities faced tough sanctions from regulators as it apologized for a glitch in its computer systems that caused a spike of more than 5 percent in domestic stock indexes last week.

The country's securities regulator said on Sunday it would launch a formal investigation into Everbright, which said it incurred losses of 194 million yuan ($31.7 million) as a result of the error last Friday.

Everbright said on its website it faced "warning or punishment by regulators, possibly impacting its business expansion and operational performance."

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"This incident brought negative impact to the company's brand reputation and market image," Everbright said.

As a result of the glitch, Everbright placed unintended buy orders totaling 23.4 billion yuan, of which 7.27 billion yuan was actually traded, a spokesman for the China Securities Regulatory Commission said in a statement on CSRC's website.

"Based on the results of the investigation, CSRC will seriously deal (with Everbright Securities) in accordance with the law and make an announcement to the public in a timely manner," a CSRC spokesman said.

Shanghai's securities regulator "has decided to adopt administrative regulatory measures (against Everbright), suspend its related businesses and instruct it to rectify and reform," the CSRC statement said. It did not elaborate.

An initial examination "found no man-made operational mistakes", the CSRC spokesman said, adding that Everbright's information system management had many problems.

(Read more: Is meltdown in China stocks about to get worse?)

Many investors suspected the spike was caused by a trading error.

It was the "first (such) case since China's capital market was established, an extreme, isolated incident," the CSRC spokesman said.

Lessons should be learned and loopholes plugged to prevent any recurrence, he added.

It was not immediately clear whether investors who suffered losses as a result of the glitch would file lawsuits against Everbright and whether the brokerage incurred other losses.

(Read more: China stocks bear brunt of growth fears)

Everbright said in a filing to the Shanghai Stock Exchange following the spike that its trading system encountered problems on Friday morning. Trading in the brokerage's shares was suspended in the afternoon.

The 21st Century Business Herald, a Chinese business newspaper, has reported that Everbright was applying to cancel all its morning trades.

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