In Depth: How Legacy Technology Broke China’s Stock Market

In late September and early October, a surge in share trading activity in China unveiled significant challenges for the Shanghai Stock Exchange (SSE) and the nation's securities firms. This highlighted persistent technical deficiencies in their outdated systems, indicating a pressing need for modernization [para. 1]. On September 27, the trading systems faced glitches and delays, coupled with crashes in brokerage software, which frustrated investors who incurred losses. The spike in trading was exacerbated by pledges from a Politburo meeting for more economic stimuli and a previously announced support package aimed at revitalizing the stock and property markets [para. 2].

As firms attempted to stress-test and enhance their systems during a public holiday starting October 1, problems persisted, with trading exceeding 1 trillion yuan within the first 20 minutes of October 8’s market opening. Despite returning to an average trading volume, the episode underscored the technological vulnerabilities within the sector [para. 3][para. 4]. This incident prompted a reevaluation of the systems, some of which are outdated and incompatible with newer technologies, a concern that has been acknowledged for years under China's "xinchuang" strategy for technological independence [para. 5][para. 6].

The strategy's goal is for financial information systems to switch to domestic technologies by 2027, but compatibility issues between old and new systems present considerable hurdles. A brokerage firm employee noted gaps in product capabilities and technical maturity between xinchuang and current products, although efforts continue to close these gaps [para. 7]. SSE’s trading platform is built on Deutsche Börse's technology, developed by Accenture, and has not seen comprehensive maintenance or updates over the years despite its complexity [para. 8][para. 9].

Unlike the SSE, the Shenzhen Stock Exchange didn't face similar disruptions, having implemented a modern trading system in 2016 based on open-source technologies [para. 11]. Experts suspect potential software errors or compatibility problems as root causes of SSE’s issues. New domestic hardware that does not fully integrate with old systems could lead to gradual bug emergence, especially given that some xinchuang software solutions are relatively new and lack maturity [para. 13][para. 14].

SSE has been awarding major technology projects to domestic firms to address these challenges, such as Digital China Advanced Systems Services and Hundsun Technologies [para. 16]. Securities companies, caught off guard by the trading boom, are now struggling to enhance system capacity against future unexpected surges without leaving resources underutilized during normal operations [para. 17]. Human resource constraints further complicate these upgrades as firms face challenges attracting and retaining top IT talent due to financial industry salary cuts and competition from major internet companies [para. 21].

A flexible system expansion solution is proposed, with suggestions to utilize cloud services that can dynamically adjust computing resources according to trading demand. Though commonly used for non-core operations in the U.S., cloud services present potential security risks due to the transfer of control over sensitive data to third parties [para. 23][para. 25]. The Securities Association of China initially suggested cloud migration in its draft plan for the network and information security enhancement of securities companies, but these requirements were eventually removed due to security concerns [para. 27][para. 28]. The securities industry prefers maintaining control over its data centers to meet compliance and regulatory standards [para. 30].