China stock index futures plummet in suspected trading error

SHANGHAI: A stock index futures contract in China tumbled in a “flash crash” in late trading on Tuesday, before bouncing back within a second in what traders said may have been a trading error.

China’s SSE 50 Index Futures for March delivery slumped 9.4% at 2:25pm local time (0625 GMT), but immediately recovered from the sharp loss. The contract will see its last trading day this Friday.

“This is likely a trading error,” said Huang Can, head of investment at hedge fund house Shenzhen City Sheng Guan Da Asset Investment Ltd, who described the fall as “horrible”.

“It shows that the market is still not liquid enough, although the fact the price bounced back instantly points to maturity of the market,” he said, adding his company failed to capture the flash arbitrage opportunity.

There was little impact on the underlying index, the SSE 50 Index. The China Financial Futures Exchange could not be immediately reached for comment.

The mysterious fall comes a month after China’s securities regulator relaxed certain rules on stock index futures trading as Beijing starts to gradually unwind restrictions imposed during the 2015 stock market crash.

It revives memories of a trading mistake by Everbright Securities in August, 2013 that triggered a short-lived surge in major Chinese stock indexes, and led to heavy fines on the brokerage for illegal insider trading involving stock index futures.

Huge market swings could be caused by “fat finger” errors by human traders to malfunctioning automated trading platforms. - Reuters