(Yicai Global) July 19 -- The CSI 300 futures IF1708 contract fell sharply after hitting the daily limit of 3,997 in the morning session on the China Financial Futures Exchange (CFFEX) today due to a fat finger (trading) error. Time-phased data show that 18 trades appeared at this price level.

"A preliminary investigation found that an asset management client placed 18 IF1708 contract trades at the limit up price via a call auction," the exchange said. "The contract opened the session at that price before falling to the normal level within a second after trading opened."

The CFFEX noted that trading was normal for all other equity index futures. The exchange's inspection team has issued a critical warning to the client and will carry out further investigations.

The equity index futures market has been stable in general for the day but liquidity has not yet fully recovered, the exchange added. CFFEX advises members and traders to thoroughly assess market liquidity and exercise caution in trading activities to ward off risks.

Insufficient liquidity in the futures market may have caused the incident, Shanghai Securities Information said. While the trading volume has increased for all of the three main equity index futures, the number of entry orders is still small in various buy and sell queues, making the impact of the trading errors more visible on the market.

Similar incidents involving fat finger errors occurred twice for CSI 500 and SSE 50 futures in March.

In 2015, CFFEX introduced many measures to curb leveraged trading in equity index futures to put a floor in the market after the stock market crash. Trading costs increased more than 100 times, leading to a substantial decline in equity index futures transactions. The exchange gradually lifted trading restrictions from February onward, and market liquidity has slowly recovered.