China Fund News reporter Ren Ziqing Wu Jun
On April 12, the China Securities Regulatory Commission solicited opinions from the public on the "Regulations on the Administration of Programmatic Trading in the Securities Market (Trial)" (hereinafter referred to as the "Administrative Regulations"). The deadline for feedback is April 27, 2024.
The Administrative Provisions make overall and framework institutional arrangements for the supervision of programmatic transactions in the securities market, and stipulate specific matters such as the management of programmatic transaction reports, transaction monitoring and risk management, information system management, and differentiated management of high-frequency trading.
At the same time, the Shanghai and Shenzhen stock exchanges have stated that they will implement the relevant requirements of the regulations on the management of programmatic transactions and continue to improve the regulatory arrangements for programmatic transactions. Implement key supervision for investors in programmatic transactions whose number and frequency of declarations reach a certain standard, make differentiated arrangements for market usage fees, traffic fees and other related fees, and appropriately increase existing fee standards or increase other fees.
China Fund News reporter on the release of the "management provisions" draft for comments, interviewed a number of securities firms, private equity institutions, they believe that the standardization of program trading, is conducive to maintaining market fairness, will bring a positive impact on the healthy development of the industry.
Strengthen transaction monitoring and risk management, and clarify the differentiated management requirements for high-frequency trading
Specifically, the "Management Regulations" has a total of 7 chapters and 32 articles, and Fund Jun has sorted out six key contents.
First, clearly define the purpose and scope of application
The purpose of formulating the "Administrative Provisions" is to strengthen the supervision of programmatic trading in the securities market, promote the development of standardized programmatic trading, and maintain the order and fairness of securities trading. Programmed trading in the securities market refers to the act of trading securities on the stock exchange through the automatic generation or issuance of trading instructions by computer programs.
The Administrative Provisions clearly require that activities related to programmatic trading in the securities market shall follow the principle of fairness and shall not affect the security of the stock exchange system or disrupt the normal trading order. At the same time, the division of responsibilities of the China Securities Regulatory Commission and its dispatched agencies, stock exchanges, and industry associations is clarified.
Second, establish a programmatic transaction reporting system
In terms of report management, report requirements are made. The stock exchange shall establish a programmatic transaction reporting system in accordance with the law, requiring that the content of the report include basic account information, capital information, transaction information, software information, etc.
In addition, the reporting path is clarified, and the customers of the securities company should report to the securities company, and if the securities company verifies that the information reported by the customer is correct, it shall confirm with the customer in a timely manner and report to the stock exchange. Securities companies and other institutions that use the trading unit report directly to the stock exchange. Programmatic trading is only possible after investors have fulfilled their reporting obligations. The stock exchange shall confirm the reported information received in a timely manner, regularly carry out data screening and consistency comparison of the reported information, and may conduct inspections of relevant entities.
Third, strengthen transaction monitoring and risk management
The first is to strengthen transaction monitoring. The stock exchange implements real-time monitoring and monitoring of programmatic trading, and implements key monitoring and monitoring of abnormal trading behaviors such as the number and frequency of declarations and cancellations in a short period of time reaching a certain standard, or the number of declarations and cancellations within a day reaching a certain standard, the large, continuous or intensive declaration and transaction in a short period of time, resulting in obvious abnormalities in the trading price or trading volume of multiple securities, and the large, continuous or intensive declaration and transaction in a short period of time, resulting in obvious abnormalities in the overall operation of the securities market, and other abnormal trading behaviors, and stipulates specific standards.
Secondly, consolidate the customer management responsibilities of securities companies. Securities companies shall sign entrustment agreements with customers, strengthen the monitoring of customers' programmatic trading behaviors, and cooperate with the stock exchange to take relevant measures.
Third, clarify the compliance and risk control requirements of institutions. Institutions related to programmatic trading should formulate special business management and compliance risk control systems, improve the review and monitoring system for programmatic trading orders, prevent and control business risks, and relevant personnel responsible for compliance and risk control should perform corresponding duties.
Finally, clarify the requirements for handling emergencies. In response to relevant emergencies, programmatic trading investors, securities companies, stock exchanges, etc. shall promptly take measures such as suspending trading.
Fourth, standardize the access to the trading information system of securities companies
The "Administrative Provisions" make a number of provisions in the management of information systems: First, clarify the requirements for the technical system of programmed transactions. The relevant technical system shall have functions such as capital verification and coupon verification, authority control, threshold management, abnormal monitoring, error handling, and emergency response, and shall be fully tested.
The second is to standardize the management of trading units of securities companies. Securities companies shall conduct unified management of trading units and provide services to all types of investors in accordance with the principles of fairness and reasonableness. No special accommodations may be provided to programmatic investors.
The third is to standardize the hosting business. Stock exchanges should allocate resources fairly, and securities companies should ensure the fairness of transactions for different customers. Securities companies shall not provide hosting services to customers who frequently have abnormal transactions for a period of time, or major technical failures in the programmatic trading system.
Fourth, standardize the access to the trading information system of securities companies. Securities companies shall incorporate the access of the trading information system into the compliance and risk control system, and programmatic trading investors shall not use the system to connect with illegal securities business, and shall not transfer, lend or provide system access to a third party.
Fifth, strengthen the management of market information. Programmatic trading investors who use the value-added market information of the stock exchange shall pay fees in accordance with the regulations. For programmatic transactions in which the number and frequency of declarations and cancellations reach a certain standard, the stock exchange is authorized to increase the market fee standard.
Fifth, clarify the differentiated management requirements for high-frequency trading
The Administrative Provisions clarify the definition of high-frequency trading, which refers to programmatic transactions with the following characteristics: (1) a relatively high number and frequency of declarations and cancellations in a short period of time, (2) a relatively high number of declarations and cancellations within a day, and (3) other characteristics recognized by the stock exchange.
At the same time, it clarifies the differentiated management requirements for high-frequency trading, including the requirement for high-frequency trading to additionally report information such as the location of the server, system test reports, and failure emergency plans, and the exchange can appropriately increase the charging standards for high-frequency trading, and strictly manage the abnormal trading behavior of high-frequency trading investors.
Sixth, violators will be subject to regulatory measures, including Northbound programmatic transactions
In terms of supervision and management, the Administrative Provisions clarify the self-discipline management measures of the stock exchange, the securities industry association and the fund industry association for programmatic trading. On the other hand, it is clarified that if securities companies, private equity funds and other institutions and individuals related to programmatic trading violate the regulations, the China Securities Regulatory Commission may take regulatory measures in accordance with the Securities Law and the Regulations on the Supervision and Administration of Private Investment Funds.
At the same time, the Administrative Provisions also clarify that Northbound programmatic transactions should be included in the reporting management in accordance with the principle of consistency between domestic and foreign investment, and the transaction monitoring standards should be implemented.
Implement the relevant requirements of the regulations on the management of programmatic transactions, and continue to improve the regulatory arrangements for programmatic transactions
On April 12, the exchange said that it will implement the relevant requirements of the programmatic trading management regulations and continue to improve the programmatic trading supervision arrangements.
The Shanghai Stock Exchange, the Shenzhen Stock Exchange and the Beijing Stock Exchange all stated that they will pay close attention to the implementation of the regulatory requirements put forward in the "Management Provisions" under the unified deployment of the China Securities Regulatory Commission, formulate supporting self-regulatory rules as soon as possible, and ensure that the measures of the "Management Regulations" are effective.
The first is to improve the monitoring and monitoring standards for abnormal transactions in programmatic transactions. To adapt to the characteristics of programmatic trading behavior, formulate more targeted monitoring indicators, and have carried out internal trial operation, and will further carry out compliance training in the future to clarify market expectations.
The second is to promote programmatic trading reports for investors in the Stock Connect. Strengthen communication with HKEX, clarify reporting arrangements as soon as possible in accordance with the principle of consistency between domestic and foreign investment and the requirements of the Administrative Regulations, and include programmatic trading for Stock Connect investors in the reporting scope.
The third is to strengthen the management of high-frequency trading investors. Implement key supervision for investors in programmatic transactions whose number and frequency of declarations reach a certain standard, make differentiated arrangements for market usage fees, traffic fees and other related fees, and appropriately increase existing fee standards or increase other fees.
In addition, it will also clarify specific requirements for standardizing hosting and programmatic trading technology system management, and mature one and launch one.
In the future, the new regulations will promote fair trading in the market, and securities firms and private equity institutions will actively prepare
Many quantitative managers and securities firms are optimistic about the positive impact of the implementation of the new regulations on the industry in the future.
"The core of the "Management Provisions" is to focus on transaction supervision, standardize programmatic transactions, strengthen high-frequency trading supervision, and enhance the internal stability of the capital market. A 10 billion quantitative private placement said.
Yang Rui, a partner at Dadao Investment, said that the new regulations clarify many concepts related to programmatic trading, such as definitions, types of programmatic trading investors, standards for abnormal trading, and special provisions for high-frequency trading. The promulgation of the new regulations aims to promote the development of programmatic trading norms, maintain market order and fairness, and allow programmatic trading investors to have laws to follow. "In the future, with the implementation of the regulations, we can expect that the securities market will be more stable, the trading behavior will be more transparent, and some behaviors that affect the market order will be effectively controlled. Xuanxin Assets said that the new regulations clarify the applicable subjects of programmatic transaction supervision, from transaction monitoring to risk management to reporting objects, there are very clear guidelines. Some previously obscure areas, such as high-frequency trading and cross-border trading, have been incorporated into the regulatory system, "so we believe that all programmatic transaction participants need to study carefully, understand the direction of supervision, and complete compliance adjustments as soon as possible." ”
A quantitative private equity firm in Beijing believes that the release of the new regulations on the supervision of programmatic transactions will play a positive role in regulating the development of the quantitative industry, and can effectively crack down on violations of laws and regulations such as disrupting the order of market transactions. Strengthening the supervision of programmatic trading highlights the importance of maintaining market fairness and is conducive to protecting the interests of investors.
Big Rock Capital said that with reference to the development path of overseas mature markets, the supervision of programmatic transactions is conducive to protecting the interests of small and medium-sized investors and maintaining a fair and just market environment. "We believe that quantitative strategy de-frequencing will become a major trend. In addition, we also see that regulatory policies encourage the observation dimension of market trading, which will also be more conducive to fundamental-biased strategies. ”
A quantitative industry insider also said that the "Management Regulations" is an important step in promoting the fairness of market transactions, which will standardize trading behavior to a greater extent and regulate the disturbance of excessive high-frequency programmatic transactions on market pricing. "Overall, we're seeing more of some elements in deals becoming fair, equitable, assessable, controllable. ”
A number of quantitative private placements told reporters that the new regulations will strengthen the management of high-frequency trading investors, including making differentiated arrangements for market usage fees, traffic fees and other related fees, and appropriately raising existing fee standards or adding other fees.
A person in a large quantitative private equity market said that the "Management Regulations" will have a greater impact on some quantitative managers who adopt high-frequency trading strategies and have relatively large average daily trading volumes. At the same time, it will also increase supervision on frequent order cancellation, which will generally promote the stable and healthy development of quantitative trading.
According to a 10 billion yuan quantitative private placement, the "Administrative Regulations" has added special provisions for high-frequency trading, focusing on the implementation of differentiated fees for high-frequency transactions with a higher number and frequency of declarations and cancellations. There is a kind of "spoofing" trading behavior in the market, that is, by making false quotations in the transaction and then canceling the order, so as to try to manipulate the stock market, and create a false impression in an attempt to deceive other traders, so as to affect the stock price profit. Charging fees for those with a higher number of declarations and cancellations will help crack down on those "spoofing" transactions.
According to the reporter's understanding, securities companies are also actively doing system transformation in accordance with regulatory requirements, and private placements have also made corresponding preparations. An insider of a medium-sized brokerage said that the system will be transformed in accordance with regulatory provisions in the future.
Yang Rui told reporters that Dadao Investment has set parameters in strict accordance with regulatory requirements in the transaction execution process, and the company's internal control has improved the programmatic transaction reporting system.
Xuanxin Assets said that the programmatic reporting and other systems have basically been implemented in accordance with the new standards in the entire quantitative industry. However, in view of the emergence of a lot of new content in the draft for comments, it may take some time to understand and digest.
Editor: Captain
Review: Xu Wen