| SHANGHAI, April 30
SHANGHAI, April 30 The People's Bank of China
(PBOC) warned against implementing a same-day trading system for
mainland stocks on Tuesday, as securities regulators consider
how best to protect retail investors from manipulation by
"On the surface, 'T+0' trading can certainly help investors
respond to changes in market sentiment in a timely way, locking
in profits and preventing losses from widening; you can also say
it would invigorate the market and improve revenues at
brokerages, but the risks in T+0 trading are hard to ignore,"
the PBOC wrote in its 2014 Financial Stability Report.
Calls for China to allow small investors to buy and sell
stocks on the same day (known as the "T+0" system used in most
developed stock markets), as opposed to the current system in
which most investors can only buy on one day and sell the next
(T+1), increased in the aftermath of a trading scandal related
to a "flash crash" caused by an automated trading error at
On Aug. 2013, a glitch with Everbright's order execution
system sent 26,082 erroneous "buy" orders worth 68.6 billion
yuan ($11.26 billion) to the Shanghai Stock Exchange during a
two-minute period, leading to a short-lived 6 percent pop for
the main index.
Everbright reacted to the errant trades by building up huge
short positions in index futures, before it disclosed details of
the glitch - the revelation of which caused indexes to collapse
- for which several Everbright executives were charged with
insider trading and banned from the industry for life.
The many small retail investors who jumped on the bandwagon
as the index soared couldn't get off when it crashed, thanks to
the T+1 rule. Nor could many hedge their bets, as trading in
index futures is still limited to institutional and wealthy
investors with more than 500,000 yuan in their accounts.
As a result, some analysts predicted that China would move
to a T+0 system in the first half of 2014, focused on allowing
same-day trading in liquid large-cap stocks.
The central bank, however, said that same-day trading would
increase the risk of market manipulation, and also complicate
trade settlement and aggravate volatility.
The PBOC does not have a mandate to directly regulate the
stock markets, which are overseen by the China Securities
Regulatory Commission (CSRC), but is charged with maintaining
overall financial stability.
Chinese regulators continue to struggle to restore
confidence in domestic stocks as an asset class, given their
poor performance compared to other kinds of investment.
China's stock markets have been among the world's worst
performers in recent years and are still down around 60 percent
from their peak in 2007, with some analysts blaming the malaise
on the market's reputation for price manipulation and insider
trading by well-connected operators.
(Editing by Eric Meijer)