UPDATE 1-Ex-Everbright Securities exec sues China securities regulator
* Exec was banned for life from securities industry
* Lawsuit claims mistaken trades aren't inside information
* Exec says market already knew about mistaken trades
* Suit claims trades were normal hedging activity (Adds Yang quotes, CSRC news conference)
SHANGHAI, Feb 14 (Reuters) - The former head of a trading unit at Chinese brokerage Everbright Securities said on Friday that he has filed a lawsuit against China's securities regulator to contest a punishment he received for insider trading last year.
Yang Jianbo, former general manager of a high-frequency trading unit at Everbright, and three colleagues were banned for life from the securities industry and fined 600,000 yuan ($99,000) each by the China Securities Regulatory Commission (CSRC) in late August after its investigation determined that they had committed insider trading.
"(The CSRC's) punishment towards me is illegal behaviour," Yang told Reuters by telephone.
The CSRC found that after a computer malfunction during morning trade on Aug. 16, which caused Everbright to take a 7.27 billion yuan long position in a commonly-traded exchange-traded fund, Yang and his colleagues committed insider trading by partially unwinding that position in afternoon trade without properly disclosing the original trading error.
Yang claims that the existence of a trading error doesn't qualify as inside information.
"In the whole world, no one considers mistaken orders to be inside information," Yang said.
CSRC declined to comment about Yang's lawsuit at its weekly media conference on Friday, referring to its original report on its investigation released in August.
Yang said that CSRC never included mistaken orders in its definition of inside information, but only designated it as such after the Everbright incident occurred.
"The law on administrative punishment is very clear. You have to designate (behavior) in advance (as a violation). You can't do it after the fact," he said.
He also said that by the time his unit began unwinding its long position in an ETF tracking the Shanghai 180 index , news about the trading error had already circulated widely.
"This wasn't inside information. Before the market opened (for afternoon trade), everyone already knew. Inside information at least has to be 'inside', right?" Yang said.
Finally, Yang said that his afternoon hedging activity wasn't based on inside information about the mistaken trades. Rather, Yang said, company policy explicitly forbade his unit from holding open positions for an extended period.
That means the unit's afternoon trades were in line with its normal strategy, not an exceptional response to the trading error.
"It was just normal hedging activity," he said.
Yang told Reuters his lawyer, Li Jiang, a partner at the Beijing-based Zhong Zhao Law Firm, submitted a complaint to Beijing First Intermediate Court on Feb. 8. The court has seven working days to decide whether to accept Yang's lawsuit. ($1 = 6.0636 Chinese yuan) (Additional reporting by Zhang Xiaochong in BEIJING; Editing by Kazunori Takada and Jeremy Laurence)