Shanghai Stock Exchange Conducts Tests After Transaction Delay
The Shanghai Stock Exchange has undertaken a series of tests on its auction and other trading platforms following an unexplained transaction delay last Friday. This move comes after the exchange experienced significant difficulties in processing a surge in trading activity, which coincided with a strong rally in Chinese stocks driven by recent monetary, liquidity, and fiscal stimulus announcements.
Transaction Delay and Market Impact
On Friday, the Shanghai Composite Index saw a notable rise, breaking through the 3,000-point mark and ending the day at 3,087.53 points, a 2.88% increase. However, the trading was marred by slow transaction confirmations, which affected market participants, particularly quantitative hedge funds. These funds, holding short positions in stock-index futures and long positions in equities, were unable to sell their shares quickly enough to meet margin calls due to the exchange's processing delays.
The delay led to significant losses for some hedge funds, as they struggled to manage their positions amidst the technical issues. Brokerages have since granted these funds extra time to gather the necessary cash to meet their margin calls, which could lead to selling pressure on certain shares and government bonds in the upcoming trading sessions.
Weekend Stress Tests
To address the issues, the Shanghai Stock Exchange conducted weekend stress tests, simulating a full trading day including both trading and clearing processes. These tests involved processing 270 million transactions, twice the previous peak and three times the orders placed on Friday. The tests aimed to ensure the stability of the trading platform during peak order submission periods.
All market participants were invited to participate in these tests, which were designed to identify and resolve any issues with processing large numbers of orders during the auction process. The exchange's efforts are focused on preventing similar delays in the future and ensuring a smoother trading experience.
Market Outlook and Investor Activity
As China approaches its week-long National Day holiday, market professionals are bracing for potentially volatile trading sessions. Despite the technical glitches, investor sentiment remains positive, driven by recent supportive policies. New account openings have surged, with some brokerages offering 24/7 services to meet the demand. The China Securities Depository and Clearing Corporation has also operated on Sunday to manage the high volume of account reviews.
The recent rally in Chinese A-shares, with the Shenzhen Component Index and ChiNext Index seeing significant gains, has further bolstered investor confidence. However, the upcoming trading sessions are expected to be highly volatile, with market participants closely watching for any further technical issues or market swings.