The China Securities Regulatory Commission strengthens the supervision of high-frequency programmed trading by pursuing profits and avoiding risks
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The reporter learned from the China Securities Regulatory Commission that in order to strengthen the supervision of programmed transactions in the securities market, promote the standardized development of programmed transactions, and maintain the order of securities transactions and market fairness, the China Securities Regulatory Commission has drafted the “Regulations on the Administration of Programmed Transactions in the Securities Market (Trial) (Draft for Comments) )” (hereinafter referred to as the “Management Regulations”), and publicly solicited opinions from the public on April 12.
Comprehensive regulation to promote healthy development
The “Several Opinions on Strengthening Supervision, Preventing Risks and Promoting High-Quality Development of the Capital Market” issued by the State Council made important arrangements for strengthening transaction supervision, which clearly required the introduction of programmatic trading supervision regulations and strengthened supervision of high-frequency quantitative transactions.
According to reports, programmed trading refers to the behavior of investors automatically generating or issuing trading instructions through computer programs. The market is also generally called quantitative trading. From the perspective of global capital markets, programmatic trading has become an important trading method. In some mature markets, programmatic trading accounts for more than 50%. Programmed trading in my country’s capital market started relatively late, but it is developing rapidly. Currently, the value of stock held by programmed trading investors accounts for about 5% of the total circulating market value of A-shares, and the transaction amount accounts for about 29%.
The China Securities Regulatory Commission stated that the market impact of programmatic trading has two sides. On the one hand, it helps to increase market activity, improve transaction efficiency, and also improves market liquidity to a certain extent. On the other hand, it should also be noted that programmed trading, especially high-frequency trading, has obvious technology, information and speed advantages over small and medium-sized investors. At some points, there are problems such as strategic convergence and trading resonance, which increase market volatility. Some institutions trade too frequently, place orders and withdraw orders quickly, and the transactions are obviously short-term. Overseas mature markets generally implement strict supervision on programmed trading, especially high-frequency trading, and have established targeted regulatory arrangements such as mandatory registration, differentiated fees, and abnormal trading behavior monitoring. Some countries will also use programmed trading to implement “cover” The behavior of “cheating” is deemed as market manipulation and punished. There are 225 million investors in our country’s market, and small and medium-sized retail investors account for more than 99%. It is even more necessary to strengthen supervision of programmed transactions and maintain an “open, fair and just” market order. This is to practice the political and people-oriented nature of capital market supervision. concrete manifestation.
The Securities Law was revised in 2019, bringing programmatic trading into the scope of regulation and clarifying the legal basis. In recent years, the China Securities Regulatory Commission has continued to explore and improve the programmatic trading supervision mechanism. In September last year, it guided stock exchanges to establish a programmatic trading reporting system. As of the end of last year, the entire market had reported 119,000 programmatic trading accounts, and had achieved “all dues should be reported” “Report”. In February this year, the China Securities Regulatory Commission guided the Shanghai and Shenzhen Stock Exchanges to take timely regulatory measures against the abnormal trading behavior of individual quantitative institutions, and all parties responded positively.
“Four Prominences” effectively improve pertinence and effectiveness
According to reports, the programmatic transaction management regulations for this public solicitation of opinions closely focus on the main line of strengthening supervision, preventing risks, and promoting high-quality development, and adhere to the idea of ”seeking advantages and avoiding disadvantages, highlighting fairness, effective supervision, and standardizing development”. Further make comprehensive and systematic provisions on the supervision of programmed transactions to effectively enhance the pertinence and effectiveness of programmatic transaction supervision. Judging from the content, it can be summarized as “four highlights”:
The first is to highlight the maintenance of fairness. Based on the largest national and market conditions, which include a large number of small and medium-sized investors, and based on the advantages of programmatic trading in information, technology, etc., a series of requirements are clarified in terms of reporting management, transaction supervision, system security, differentiated charging, etc., to effectively maintain market transactions. Fairness, control negative effects, give full play to its positive role, and promote the healthy development of programmed transactions.
The second is to highlight full-chain supervision. In advance, the requirement of “report first, trade later” is implemented, and programmed trading investors must report basic account information, capital information, trading strategies, etc. in advance. Technical systems should comply with stock exchange regulations, and relevant institutions should develop special compliance risk control systems. During the incident, the stock exchange implemented real-time monitoring of programmed transactions and formulated targeted abnormal transaction monitoring standards. Securities companies must fully implement customer management responsibilities. Afterwards, we will strengthen the connection between self-discipline management and administrative supervision, and clarify the accountability for violations of laws and regulations.
The third is to highlight the key points of supervision. The “Management Regulations” require stock exchanges to clarify the identification standards for high-frequency trading, implement differentiated charges for high-frequency trading, and strictly manage their abnormal trading behaviors. At the same time, it is clarified that investors should additionally report system testing status, system failure emergency plans and other information before engaging in high-frequency trading.
The fourth is to highlight systematic measures. The “Management Regulations” are the basic institutional arrangements for the supervision of programmed transactions. They clarify the division of responsibilities of the China Securities Regulatory Commission and its dispatched agencies, stock exchanges, and industry associations, and authorize stock exchanges and industry associations to refine business rules and specific measures. Gradually build a three-dimensional rule system that connects administrative supervision and self-regulatory management.
Differentiated supervision of high-frequency trading
In addition, the “Management Regulations” provide special provisions for high-frequency trading. High-frequency trading refers to trading behavior in which the number or frequency of orders placed and canceled in a short period of time is high, as well as the number of orders placed and canceled in a single day. Currently, the stock exchange’s screening criteria for high-frequency trading is that the highest filing rate per second is more than 300, or the highest single-day filing rate is more than 20,000. Judging from the screening results, the number of high-frequency trading accounts is generally small, but the transaction amount is large, accounting for about 60% of the programmatic transaction amount. This “Management Regulations” fully draws on the experience of international market supervision, and puts forward stricter differentiated supervision requirements for high-frequency trading from the perspective of maintaining market fairness and trading order.
One is the additional reporting mechanism. In the process of high-frequency trading, system security and stability are crucial. Once a failure occurs, it may affect the normal trading operation of the market. Therefore, in addition to general reporting requirements, the “Administrative Regulations” also require additional information such as the location of the high-frequency trading reporting system server, system test reports, and system failure emergency plans.
The second is differentiated charges. Many overseas exchanges charge higher fees for high-frequency trading. The purpose is to use market-oriented adjustment methods to guide high-frequency trading to actively control trading frequency and standardize trading behavior. In the “Management Regulations”, stock exchanges are authorized to increase the charging standards for high-frequency transactions and consider charging other fees such as order cancellation fees. The stock exchange will also make separate regulations in this regard.
Third, transaction supervision is appropriately strict. According to the “Management Regulations”, the stock exchange will focus on supervising high-frequency trading. If abnormal trading behavior is found, strict management measures can be taken in accordance with the regulations. This will help urge high-frequency trading investors to strengthen internal management and risk control and participate in transactions in compliance with laws and regulations.
The person in charge of the relevant department of the China Securities Regulatory Commission said that in general, the implementation of differentiated supervision on high-frequency trading is neither to shut out this trading method nor to let it go, but to embody the principle of “seeking advantages and avoiding disadvantages, standardizing development” idea.
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