President Securities Corp (統一證券) yesterday denied reports that human error at the company sparked volatility on Taipei’s stock futures market.
Shortly after yesterday’s opening bell at 8:45am, pricing on the futures market plummetted from 10,328 points to 10,274.
The decline triggered the company’s automated trading program to initiate stop-loss market orders designed to contain risk, President Securities said in a filing with the Taiwan Stock Exchange.
Photo: Chien Jung-fong, Taipei Times
After the orders were made, future contract prices continued falling to an intraday low of 9,408 points, the company said.
The incident created chaos, dragging down the local stock market, with the TAIEX closing down 49.39 points, or 0.47 percent, at 10,469.88.
At one point, the TAIEX fell below the the nearest technical resistance level of 10,500 points due to a slump at the opening of the futures market.
Losses from the incident incurred by President Securities totaled about NT$20.82 million (US$688,788), less severe than estimates of NT$60 million to NT$80 million made by market observers and media outlets, the company said.
The brokerage said that it had made 131 stop-loss orders, representing 17 percent of the turnover during the incident’s short time frame of minutes or seconds.
The brokerage said that the losses were incurred by its proprietary traders and that its customers were not affected.
However, the Financial Supervisory Commission (FSC) said it had begun an investigation into the sudden price declines and the circumstances that led to the triggering of President Securities’ stop-loss mechanism.
While there have been cases of “fat-finger errors,” the incident was thought to be the first of software risk containment measures going awry and causing substantial losses, Securities and Futures Bureau Deputy Director Chang Chen-shan (張振山) told a news conference in Taipei.
Fat-finger errors are named for the idea that people with large digits might more frequently cause data entry errors.
The Taiwan Futures Exchange did not detect errors or irregularities that could have caused the incident, Chang said, but did not provide further details because of the investigation.
“It is not unusual to see large price movements early in the session due to the smaller number of market orders,” he said, adding that the reasons for yesterday’s sudden fall are still largely unknown.
The intraday pricing chart showed that early in the session, pricing dipped sharply before quickly recovering in two successive cycles before relatively calm trading for the rest of the session, Chang said.
This means that President Securities’ stop-loss orders did not throw off other brokerages’ trading programs, as that could have led to a continued decline, he said.
Affected investors should ask their brokerages for advice, the commission said, adding that it would conduct additional checks of President Securities’ internal controls.
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