An investor who used Chinese stock-index futures for hedging triggered a flash crash Tuesday, the China Financial Futures Exchange said.
Contracts on the CSI 300 Index due in June dropped by the 10 percent daily limit at 10:42 a.m. local time before recovering almost all of their losses in the same minute. The sudden drop was triggered by the unidentified trader’s order for 398 contracts at current market prices. They were filled consecutively, which prompted the broader selloff, the futures exchange said in a statement.
The slump follows a similar drop in Hang Seng China Enterprises Index futures on May 16 in Hong Kong, a move that heightened anxiety among investors facing slower Chinese economic growth and a weakening yuan. Volume in China’s stock-index futures market, which was the world’s most active as recently as July, has all but dried up after authorities clamped down on speculative trading during the nation’s $5 trillion equity crash last summer. Tuesday’s volatility had little impact on the underlying CSI 300, which rose 3.4 percent.
‘Liquidity in the market is really thin at the moment,’ Fang Shisheng, Shanghai-based vice general manager at Orient Securities Futures Co., said by phone. ‘So the market will very likely see big swings if a big order comes in.’
This post was published at David Stockmans Contra Corner by Bloomberg Business ‘ June 1, 2016.
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