China Tightens Grip on Quant Funds: Blindfolding High-Frequency Traders

The Shanghai and Shenzhen stock exchanges may suspend value-added market data feeds to curtail quant funds’ influence, which linked to market volatility. Regulators aim to create a more level playing field for retail investors by limiting granular transaction data essential for high-frequency trading strategies.

The Shanghai and Shenzhen stock exchanges are considering suspending certain value-added market data feeds to institutions such as computer-driven quant funds, two sources said in an effort by Chinese regulators to tighten scrutiny of a sector blamed for contributing to market volatility.

The bourses may suspend providing granular transaction details including so-called tick-by-tick data, one of the sources said. Such data is essential for quant funds, especially those using high-frequency trading (HFT) strategies that use computers programs to profit from tiny and fleeting market fluctuations.

China's securities regulator have tightened supervision of quant funds, saying they could contribute to market volatility, while blaming some for commanding unfair advantages over retail investors. Last month, China

published rules aimed at sharpening the oversight of program and high-frequency trading.

The stock exchanges' planned move "is like blindfolding quant funds to make the market fairer, creating a level playground for retail investors, " the source said. The China Securities Regulatory Commission (CSRC) and the two exchanges did not immediately respond to Reuters' requests for comment.