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July 31, 2015 10:21 am
China targets high-frequency traders in ‘spoofing’ probe
Gabriel Wildau in Shanghai
China’s securities regulator is targeting high-frequency traders in its latest attack on price manipulation, amid stock market turbulence that has sparked concerns over the stability of the broader financial system.
The government and state-backed financial institutions have taken unprecedented measures to support the stock market after the Shanghai Composite index fell 35 per cent from a seven-year high touched on June 12, including using trillions in public funds to buy shares.
The Shanghai Composite index lost 1.1 per cent on Friday and 10 per cent on the week, with most of the biggest losses occurring on Monday. The Shanghai Composite is now 29 per cent below its seven-year high and 8.6 per cent above the low point hit at the depth of the crisis on July 9.
The China Securities Regulatory Commission has previously said it is tracking down “malicious” short sellers in relation to the market tumble. Friday's action shifts the focus to algorithmic trading, which the CSRC said “amplifies gains and losses”. The Shanghai and Shenzhen stock exchanges suspended trading by 24 securities accounts that the regulator said had “influenced securities prices or investors’ decision”.
The agency appears to be focused on a practice known as “spoofing”, in which an investor submits a buy or sell order but then retracts it before a sale is completed. The practice can be used to manipulate prices by creating the false impression that a stock is trading at a particular price.
“Creating a false impression in order to make other people buy in — that's what they're looking at now. They've investigated this before as well. If you have extra time or extra funds, you can gain an advantage,” said Zhang Qi, equity strategist at Haitong Securities.
Indeed, the role of the so-called “national team” of state-owned financial institutions in supporting the market in recent weeks has apparently created new opportunities for unscrupulous traders to profit from spoofing.
Four of the accounts suspended on Friday were opened at the Beijing headquarters of Citic Securities, China's largest brokerage by assets. The securities hall at Citic headquarters was known to be the source of big trades from China Securities Finance Corp, the state-owned margin lender that has been the main conduit for injecting state funds into the stock market.
Market observers suspect that by placing large orders through this branch, opportunistic traders could create the impression that the “national team” was buying a particular stock. That would prompt interest from other investors eager to ride its coattails, leading to higher prices.
“They really haven't laid out a clear standard [for what is forbidden], so this will make quant traders worried and think about stopping,” said Hu Guopeng, tactical strategist at Fangzheng Securities in Shanghai. But he added that quantitative trading was still relatively rare in China compared to developed markets.
In a sign of how the “national team” is now driving the market, the CSI 300 index — which tracks the largest companies listed in Shanghai and Shenzhen — edged up slightly on Friday, despite losses in the broader Shanghai Composite. Analysts believe CSF and other team members are concentrating their efforts on blue chips.
State media has reported that CSF and other “national team” members have recently switched securities halls in order to better disguise their investments.
In a further move to boost the market, the Shanghai exchanges on Friday also slashed transaction taxes on stock trades.
Twitter: @gabewildau
Additional reporting by Ma Nan
July 31, 2015 10:21 am
China targets high-frequency traders in ‘spoofing’ probe
Gabriel Wildau in Shanghai
China’s securities regulator is targeting high-frequency traders in its latest attack on price manipulation, amid stock market turbulence that has sparked concerns over the stability of the broader financial system.
The government and state-backed financial institutions have taken unprecedented measures to support the stock market after the Shanghai Composite index fell 35 per cent from a seven-year high touched on June 12, including using trillions in public funds to buy shares.
The Shanghai Composite index lost 1.1 per cent on Friday and 10 per cent on the week, with most of the biggest losses occurring on Monday. The Shanghai Composite is now 29 per cent below its seven-year high and 8.6 per cent above the low point hit at the depth of the crisis on July 9.
The China Securities Regulatory Commission has previously said it is tracking down “malicious” short sellers in relation to the market tumble. Friday's action shifts the focus to algorithmic trading, which the CSRC said “amplifies gains and losses”. The Shanghai and Shenzhen stock exchanges suspended trading by 24 securities accounts that the regulator said had “influenced securities prices or investors’ decision”.
The agency appears to be focused on a practice known as “spoofing”, in which an investor submits a buy or sell order but then retracts it before a sale is completed. The practice can be used to manipulate prices by creating the false impression that a stock is trading at a particular price.
“Creating a false impression in order to make other people buy in — that's what they're looking at now. They've investigated this before as well. If you have extra time or extra funds, you can gain an advantage,” said Zhang Qi, equity strategist at Haitong Securities.
Indeed, the role of the so-called “national team” of state-owned financial institutions in supporting the market in recent weeks has apparently created new opportunities for unscrupulous traders to profit from spoofing.
Four of the accounts suspended on Friday were opened at the Beijing headquarters of Citic Securities, China's largest brokerage by assets. The securities hall at Citic headquarters was known to be the source of big trades from China Securities Finance Corp, the state-owned margin lender that has been the main conduit for injecting state funds into the stock market.
Market observers suspect that by placing large orders through this branch, opportunistic traders could create the impression that the “national team” was buying a particular stock. That would prompt interest from other investors eager to ride its coattails, leading to higher prices.
“They really haven't laid out a clear standard [for what is forbidden], so this will make quant traders worried and think about stopping,” said Hu Guopeng, tactical strategist at Fangzheng Securities in Shanghai. But he added that quantitative trading was still relatively rare in China compared to developed markets.
In a sign of how the “national team” is now driving the market, the CSI 300 index — which tracks the largest companies listed in Shanghai and Shenzhen — edged up slightly on Friday, despite losses in the broader Shanghai Composite. Analysts believe CSF and other team members are concentrating their efforts on blue chips.
State media has reported that CSF and other “national team” members have recently switched securities halls in order to better disguise their investments.
In a further move to boost the market, the Shanghai exchanges on Friday also slashed transaction taxes on stock trades.
Twitter: @gabewildau
Additional reporting by Ma Nan
