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China punishes hedge fund for high-frequency trading in index futures as it broadens crackdown on quant investments

In Business
February 29, 2024

It also failed to disclose the links between three corporate accounts and two retail accounts belonging to the owner and his relative, it said.

The exchange will continue to strengthen its oversight of the market to clamp down on wrongdoings, it added.

The episode underscores the intensifying of a regulatory campaign aimed at reining in trading activities deemed by the securities watchdog as disruptive to the nation’s yuan-denominated stock market.

The Shanghai Stock Exchange last week penalised a quant hedge fund for offloading stocks via quantitative trading, about two weeks after Beijing appointed a new chief to helm the stock market’s regulatory body.
What the financial futures exchange did “is the measure of assuming regulatory responsibility,” the China Securities Regulatory Commission (CSRC) said in a statement, referring to the punishment administered by the bourse.

“The CSRC will guide the stock exchanges and the financial futures exchange to strengthen the coordination of market oversight and scrutiny of a variety of trading activities, including high-frequency trading,” it said.

In signs of heightened market surveillance, newly appointed CSRC chairman Wu Qing emphasised that ensuring a lawful rule of the market would form a key strand of reform measures, and pledged to hammer out more laws and rules to protect smaller investors.

Wu is known for the tough stance he took on market malfeasance when serving as chairman of the Shanghai exchange from 2016 to 2017, deploying a slew of crackdowns on manipulation and insider trading.

The CSRC said in a separate statement on Wednesday night that it would continue to strengthen its regulation of over-the-counter derivate products, such as direct market access used as a quant trading strategy, and restrict the size and leverages of such products.

Shanghai Weiwan, which was founded in 2016, has 25 funds under management, 16 of which are stock-focused and six of which invest in futures, according to fund tracker Howbuy. Its futures-oriented funds returned 5.8 per cent on average last year and 115 per cent in 2022, outpacing the industry averages, Howbuy’s data shows.

The CSI 300 Index rose 1.9 per cent to 3,516.08 on Thursday, extending to 11 per cent its rebound from a five-year low seen on February 2. The most active contract linked to the underlying gauge traded at 3,515.40 on the financial futures exchange.

A barrage of rescue measures have halted a three-year rout in China’s onshore market, at least for now. On top of the restraints on quant trading, the regulator has imposed restrictions on short selling, while the investment unit of the nation’s wealth fund has increased its buying of shares via exchange-traded funds, which UBS estimated at about 410 billion yuan this year.

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