THE Shanghai Stock Exchange has criticized four domestic securities brokerages for late trades on behalf of foreign investors that caused a sudden tumble in several blue-chip stocks two weeks ago.

    The large-cap stocks, including China Construction Bank, China Citic Bank and Great Wall Motor, suffered big falls in the closing two minutes of trade Dec. 20 after orders from the investors were executed. The share prices quickly recovered the next trading day.

    The firms involved are UBS Securities Ltd., Guotai Junan Securities Co., Orient Securities Co. and China International Capital Corp. (CICC), China Securities News reported.

    In a statement announced two days later after the drop, the Shanghai Stock Exchange said the unusual movements were due to adjustments in an influential stock index tracked by foreign investors, which caused these investors to adjust their holdings.

    The exchange said in the statement it would further investigate the movements.

    That investigation revealed that four foreign firms had placed large orders with local brokerages to adjust their portfolios in line with changes to the FTSE Xinhua China A50 Index, which tracks the 50 largest A-share companies listed in Shanghai and Shenzhen, the paper reported.

    The brokerages waited until the final two minutes before market close to execute them, causing steep falls in the prices of shares whose index weightings had been adjusted downwards, the exchange found.

    The foreign investors involved were UBS, Hong Kong and Shanghai Banking Corp., a unit of HSBC, Citigroup Global Markets, a unit of Citigroup, and Martin Currie Investment Management, the paper reported.

    These firms are accredited under the Qualified Foreign Institutional Investor (QFII) program, the main channel through which foreign investors can access China’s capital markets. While the QFII investors were not accused of any wrongdoing, the exchange criticized the securities companies the QFIIs hired to conduct their trades, the paper reported.

    Brokerages have a responsibility to consider the impact on the broader market when they receive and execute client orders, the exchange said.

    In deciding to execute a large volume of client orders within a short period, these brokerages negatively influenced “market order” and violated rules governing exchange members, the exchange found. (SD-Agencies)