It was not human error, but design flaws in a trade unit of China Everbright Securities (CES) that triggered the anomalous trades on Friday, according to the China Securities Regulatory Commission (CSRC) on Sunday.
A securities commission spokesman said Friday that an abnormal stock market spike seen during Friday's morning trading was mainly caused by a large number of purchase orders sent from Everbright Securities' own account.
Mei Jian, secretary of Everbright's board of directors, said Everbright uses its own funds for trading, so the incident did not result in the loss of clients' capital.
Mei also denied rumors that the bank applied to have morning trading canceled, adding that the company has accepted SSE's conclusion.
SSE said in the afternoon that all Friday trading will go through the normal settlement and entrustment process.
China's stock market saw a massive fluctuation during Friday's trading. In late morning trading, the benchmark Shanghai Composite Index spiked 5.96 percent within three minutes.
More than 70 stocks, led by bank and oil shares, rose by the daily limit of 10 percent.
Everbright Securities Co., Ltd. said in a statement to the SSE that its investment strategy department encountered a problem in its arbitrage system while operating with its own funds during morning trading.
Trading of Everbright shares, which rose 6.69 percent in the morning amid big gains in the financial sector, was suspended on Friday afternoon.
Early gains for Chinese shares were almost erased during afternoon trading, with the Shanghai Composite Index closing down 0.65 percent.
CES acknowledged the flaws in the strategy trading system at a press conference on Sunday evening.
CES suffered an overall loss of 196 million yuan on Friday trading, according to the conference.
CES is actively collaborating with the regulating authorities in the investigation, said Xu Haoming, the CES president.
The company has sealed up the system and trading data as well as documents and transaction flow. A scrutiny on all the trading systems is under way, said Xu.
CES will perform its duties and obligations on investor compensation according to law, said Mei Jian, secretary of the CES board of directors.
Stock analysts said Friday's incident demonstrated the existence of loopholes in the trading process used by Chinese brokerages.
A Howbuy Fund research team said China's regulatory body and institutional investors should strengthen risk control and management, adding that they must not underestimate risks brought by small incidents in the financial market.
A report from Wanglong Securities said Friday afternoon's large falls indicate that the market remains weak.
The China Financial Futures Exchange said Friday that the stock-index futures market is operating normally.
Deposits will be enough to cushion Friday's fluctuation, it said.
Stock-index futures contracts allow investors to bet on and profit from either gains or declines in the market.