A $41 Billion Flash Crash of Jardine Matheson Shares Scared the Investors

Jardine Matheson shares listed on the Singapore Exchange (SGX) took a sudden 83 percent dive worth $41 billion on Thursday morning before making an equally quick recovery.

Photo: Ka Wing Chan / Flickr

Photo: Ka Wing Chan / Flickr

This stunning movement, which took place almost immediately, sparked a temporary market panic as stock market investors struggled to dump their stocks before an equally rapid recovery took place. At the end of it, about 167,500 shares had changed hands at discounts of up to 75 percent of the previous day’s closing price.

The Jardine Matheson Group is a conglomerate with interests spread across Asia. Founded in China in 1832, the group is owned by the Keswick family, and it holds extensive positions in the restaurant and hotel business, car dealerships and real estate. In 2017, the group reported their total revenue of about $83 billion, with a profit of about $1.57 billion.

The plunge came after sell orders overwhelmed bids before the opening session, it said in an emailed statement.
SGX wrote:

“Trading was orderly and there was no sign of manipulation. We have also ascertained that the orders were not due to fat finger errors or any malfunctioning systems on the part of the participants.”

The shares were quickly rebounded, however, and the losses were recouped as Jardine Matheson ended the day 0.53 percent higher at US$66.82.

One of the local trader before SGX released its findings said:

“Obviously, it looks like a fat finger trade and the seller is bound to have informed the exchange and requested it to cancel the trade. Given the huge price difference, normally such trades are cancelled.”

He further explained:

“Trading was orderly and there was no sign of manipulation. We have also ascertained that the orders were not due to fat finger errors or any malfunctioning systems on the part of the participants.”

CMC Markets analyst Margaret Yang said:

“The transaction was divided into 164 trades, suggesting there could be more than a hundred counterparts behind this trade.”

Three market makers are nursing losses from selling amid the plunge, while more than a dozen counterparties snapped up the cheaper shares for an instant profit, according to a person with knowledge of the matter, who asked not to be named because they’re not authorized to speak publicly about the matter. The exchange isn’t letting the sellers off the hook.

Speculation raged across trading desks as to whether an inept human or badly-programmed machine was to blame. Sell orders overwhelmed bids during the pre-open, for which neither a fat finger nor a malfunctioning computer system were responsible, Singapore Exchange Ltd. said in an e-mailed statement after the market closed. There was no evidence of manipulation and trading was orderly, the bourse said.

Still, if the orders themselves weren’t a mistake, the price reaction almost undoubtedly was. It’s a reminder of how quickly losses can happen in lightning-fast financial markets, exacerbated in this case by the fact that Singapore’s circuit breakers only kick into action when the regular trading session begins.

Those who sold at the pre-market price left about $9 million on the table, according to calculations.

Jingyi Pan, a market strategist at IG Asia Pte in Singapore said:

“The extent of the price plunge was certainly out of the norm, one that had folks questioning if it had really occurred.

The rapid movements unfolding in the early hours of the market open could have enabled this to slip away.”

Margaret Yang, strategist at CMC Markets Singapore Pte. Ltd. said by e-mail:

“Apparently there is lack of protection mechanism during pre-market hours. Lack of liquidity in Jardine Matheson amplified the price movement, and this is a common issue across Singapore’s equity market.”

It isn’t the first time this has happened to a major stock listed on the Singapore bourse. In 2000, Singapore Telecommunications Ltd. soared30 percent due to a last minute order from Nomura Singapore Securities Pte. to buy 2 million shares.

The exchange, which insists on upholding the trades, says that the sellers had more than enough time to withdraw the sell orders if they were not satisfied with selling at such a low price. At least three prime traders recorded significant losses as they rushed to sell off their holdings when the plunge took place.

On the other hand, more than 12 counter-traders snapped up the temporarily cheap shares, in the process recording profits of up to 75 percent by the time the market opened and Jardine Matheson stock rebounded to its normal price.

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