"The securities firm called me and said either to supplement the debt, or to give me a strong balance, or to sue and hold me accountable." Mr. Du, a US stock investor, told Securities Times Securities China reporter that when Berkshire experienced a malfunction the night before yesterday and suspended trading at around $188, he used Zunjia Securities to place a market price order. Unexpectedly, after the New York Stock Exchange resumed trading, it was directly traded at $648000. "But I have a cash account with a balance of only HKD 10000 equivalent in US dollars, and currently it shows that I have a debt of nearly 5 million."
On the evening of June 3rd Beijing time, there were technical issues on the New York Stock Exchange, and several stocks were suspended due to significant fluctuations. Berkshire Hathaway plummeted by an astonishing 99.97%, with its stock price dropping from around $620000 per share to $185.1 in an instant.
A Chinese journalist from a securities firm learned that several investors have encountered a similar situation with Mr. Du, involving the trading systems of multiple Chinese backed securities firms. At present, some securities firms have cancelled transaction orders, and some securities firms have chosen to bear the losses of traders. However, several securities firms, including Changqiao Securities, have not yet announced their handling results.
I owe nearly 5 million yuan to securities firms
In Mr. Du's account, there are still Berkshire stocks with a floating loss of over 210000 yuan. Mr. Du believes that this transaction should not have occurred, and these floating losses should not be borne by himself.
According to Mr. Du's introduction, I am very clear that my account is only a cash account without financing function activated, so I did not expect or cannot expect the order to be executed at an excessively high price. The submitted order is a market price order that exceeds the cash balance, and it is even less likely to be executed.
He said that the real-time display of the brokerage market software restored the first transaction to 11:38, with a price of 640000.01 US dollars. But the customer's order was executed at 11:35. He believes that when the securities market software did not display the resumption of trading, the trading had already been executed, effectively depriving customers of their right to know and trading, resulting in customers losing the opportunity to cancel trading orders.
The Securities Times Securities China reporter contacted multiple investors through social media and other channels and found that similar situations are not uncommon, with multiple securities firms with Chinese backgrounds involved.
"We have already dealt with these situations yesterday. Some customers have floating profits after transactions, so we have retained the trading; some customers have incurred losses, so we have borne the portion of the losses," a Chinese securities firm controlled by mainland China told Securities Times Securities China.
Another securities firm that specializes in trading Hong Kong and US stocks also told Securities Times Securities China that "indeed, some abnormal orders related to Berkshire have been revoked and have no impact on customer transactions and funds.". Chinese journalists from securities firms have also verified the above information through some investors.
However, social media reports indicate that some investors of Changqiao Securities have not received any processing of abnormal trading orders. The Chinese journalist from the securities firm contacted Changqiao Securities, but as of the time of publication, Changqiao Securities had not responded to this.
Risk control system attracts attention
In the event of a technical malfunction on the New York Stock Exchange, some market orders of securities trading users were executed, some were not executed, some could be revoked after execution, and others could not be revoked. What are the reasons for these differences?
Tang Linghu, a partner of Hantang Investment in Hong Kong, explained to Securities Times Securities China reporter, "Some securities trading systems have a quantitative trading function for market orders. For example, they can be set to trade every 1% rebound after a 10% decline. If the order is successfully placed when Berkshire's stock price drops to $188, it is indeed possible to trade when the stock price rebounds rapidly in the future."
"The logic of trading a market price order is based on immediately executing the transaction at the optimal price in the current market. Specifically, when investors submit a market price order, they indicate their willingness to accept the best price available in the current market to complete the transaction, regardless of the price. That is to say, if Berkshire A-shares do not continue to appear at around $185 after the resumption of trading, but instead appear at a price of over $600000, then if the market price order is not withdrawn in time, it will be pursued and traded at a price of over $600000, making it easy to trade at a high price. However, if the trading system is slow, it is easy to start chasing orders at a price of over $700000." Explanation to Securities Times Securities China reporter.
However, some securities firms suggest that such situations can be avoided by strengthening risk control logic. Futu Securities stated in an interview with Hong Kong media that in this round of abnormal market conditions, the platform did not cause any losses to users as a result. Futu Securities stated that it has a sound risk control mechanism for market orders to avoid executing orders with prices significantly deviating from expectations. After Berkshire suspended trading, market orders were suspended, and to avoid user losses, the platform's options trading would also be deemed illiquid under abnormal circumstances and market order orders would be disabled.
The senior person mentioned above stated that some investors who are forced to buy at a high price in the market issue transaction orders, mainly because these securities firms lack risk control logic. In the backend logic setting, when the investors themselves do not have enough capital, from a risk control perspective, an additional layer of logic for risk control can effectively avoid investors taking on huge financing leverage, and securities firms are also forced to face the problem of investors taking risks themselves after their positions are liquidated.
"It is recommended that securities firms add an additional layer of 'identification of net assets and maximum risk-taking ability' and 'manual follow-up under special circumstances' in their risk control logic, which can effectively avoid the occurrence of liquidation events in extreme market conditions," the person said.
Regarding the situation encountered by investors such as Mr. Du, Tang Linghu stated that if the contract between the investor and the securities firm does not have financing authorization or restricts the financing ratio, for transactions exceeding the authorization, the securities firm can be reasonably required to bear the losses.