29/02/24

CHINA: China securities regulator to tighten scrutiny of derivatives, high-frequency trading

As published on: reuters.com, Thursday 29 February, 2024.

China's securities regulator said on Wednesday it will tighten scrutiny of derivative businesses in the stock market, and announced punishment of a hedge fund company for excessive, high-frequency trading in share index futures.

The announcements represent the latest of a series of measures by the watchdog to revive investor confidence in a stock market wallowing near five-year lows.

The China Securities Regulatory Commission (CSRC) said it would strengthen supervision of derivatives including so-called DMA-Swap products.

The CSRC made the statement in response to media reports that DMA-Swap, a business in which hedge funds borrow from brokerages to trade, was being restricted.

"Steadily reducing leverage in the DMA business helps prevent and control market risks, and is good for stable and healthy operations of the market," the CSRC said in a statement.

Some hedge funds suffered losses during the recent market volatility, and have been actively reducing such business with brokerages, the CSRC said, adding that DMA-Swap products currently account for roughly 3% of daily trading volume.

The CSRC said it will guide the securities industry to control leverage, and crack down on illegal activities.

Separately, the China Financial Futures Exchange (CFFEX) said it had recently punished a Shanghai-based hedge fund for exceeding the limit when trading stock index futures.

The hedge fund firm would be barred from opening positions via several accounts for 12 months, while 8.9 million yuan ($1.24 million) worth of illegal gains would be confiscated, the exchange said.

The CSRC said it will work with CFFEX to tighten scrutiny of high-frequency trading and clamp down on misbehaviour.

The punishment came a week after China's stock exchanges suspended trading accounts of a major hedge fund company for dumping shares at the market open.

 

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China Regulation Trading Securities