CHINA banned a top-performing quant fund from the stock-index futures market and vowed tighter oversight of high-speed trading, expanding a crackdown on computer-driven investment strategies that some have blamed for exacerbating market turmoil.
The China Financial Futures Exchange recently banned Shanghai Weiwan Fund Management from opening stock index futures positions for 12 months, while confiscating 8.9 million yuan (S$1.7 million) in illegal gains, the bourse said in a statement late Wednesday (Feb 28).
The hedge fund had used high-frequency trading to circumvent transaction limits on multiple equity index futures, according to the exchange. It also failed to disclose the links between accounts by its controller and relatives and accounts used for managing its products.
The penalty marks an escalation of a clampdown on quantitative trading, as regulators try to shore up the stock market after three years of losses. It also shows the strong resolve of Wu Qing, who was named chairman of China Securities Regulatory Commission (CSRC) in early February, to punish wrongdoing.
Wu pledged to enhance judicial protection and law enforcement efficiency in the stock market to stabilise expectations and foster its long-term development, according to a CSRC statement late Wednesday.
The latest moves suggest the regulator is shifting to a more “results-oriented” stance, said Yu Yingbo, a fund manager at Zhuhai Wanfang Investment Management. Rather than just plugging loopholes, “once they identify a certain type of strategy they want to quell, it is an all-round chase with measures to prevent it from ever cropping up again”.
The regulator will guide stock exchanges and the financial futures bourse to step up coordinated oversight of all trading behaviour, including high-frequency trading, and crack down on illegal activities, it said in a separate statement. Regulatory oversight will be stepped up across the board, it added.
China earlier this month broadly took aim at quant funds, which relied on computer-driven trading to outperform the market for much of the last three years. The group fell under scrutiny after being blamed for worsening a market slump with their “Direct Market Access” (DMA) products, which typically use swap contracts and are often highly leveraged.
Some quant funds that manage DMA products for clients were told to stop accepting new inflows and phase out their existing products, in a gradual exit that would help prevent drastic sell-offs, Bloomberg News reported this week. Some of the DMA funds had earlier been barred from paring positions by regulators trying to stem the market rout.
The government’s forceful measures have helped prop up the market at least temporarily, with the benchmark CSI 300 index jumping 10 per cent from its five-year low hit earlier this month.
Still, some analysts have questioned whether the interventions come at the expense of efforts in recent years to develop a free market.
Shanghai Weiwan was the top performer for the commodity trading adviser strategy in 2022 among managers with less than 500 million yuan, with a 105 per cent gain to November of that year, according to Shenzhen PaiPaiWang Investment & Management. One of its products was ranked 19th among all CTA strategies by managers with less than that amount over the past year. BLOOMBERG
