China Quant Hedge Funds Under Scrutiny as Stock Turnover Jumps
(Bloomberg) -- Chinese officials are stepping up scrutiny of quantitative trading after the securities regulator warned against possible problems caused by computer-driven transactions.
Regulators consulted some top quant funds this week about the potential impact of trading on the market, people with knowledge of the matter said. Similar communications have taken place previously and regulators haven’t requested any curbs on fund size or trading frequency as of now, the people added, asking not to be named because the discussions are private.
The move comes as China increases regulatory oversight of everything from tech to education to achieve “common prosperity.” China Securities Regulatory Commission Chairman Yi Huiman said in a speech on Monday that quantitative and high-frequency trading can easily cause issues such as increased volatility and unfairness even as it enhances liquidity and pricing efficiency.
The CSRC didn’t immediately respond to a request for comment.
Chinese quant hedge funds’ combined assets topped 1 trillion yuan ($155 billion) earlier this year for the first time, as top players like Lingjun Investment, Ubiquant and Zhejiang High-Flyer Asset Management led new product offerings to tap rising demand.
“Regulators have shown a lot of care and interest recently in understanding the quant trading market,” Lingjun Investment said in a reply to Bloomberg, without elaborating. That’s “good for the industry, which will have more opportunities to communicate with and report to regulators about the quant trading market.”
Quant hedge fund Tianyan Capital closed to new inflows Sept. 7 to seek more stable growth, and it didn’t receive any guidance on winding down, the company said. The firm’s assets under management tripled this year to more than 30 billion yuan, according to its website.
Daily turnover in China’s stock market has routinely exceeded 1 trillion yuan since July, fueling discussions about the underlying causes. Such activity is rare and tends to only come in a bull market, while gains this time have been small, according to Yuan Jianjun, deputy general manager of China Universal Asset Management Co.
“That’s been a mystery that appeared in China’s capital market this year,” Yuan told a forum in Beijing on Tuesday, adding that the reasons could include residents shifting money from property into financial assets.
Before Yi’s speech, Evolution Asset Management said last week that it suspended fundraising for its algorithmic trading products, Yicai Global reported earlier. Other funds that previously took similar moves include Minghong Investment Management, Qilin Investment and JinGe Asset Management, according to the report.
Minghong closed its market-neutral and CSI 500 Index enhanced products to new inflows as early as April, according to the company.
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