Shanghai Stock Exchange Photo:CFP

Shanghai Stock Exchange Photo:CFP

China’s three major stock exchanges have reportedly formulated oversight standards targeting abnormal program trading, with trial being conducted internally, as financial regulators strengthen supervision on market trading to support the long-term healthy and sound development of China’s capital market.

The Shanghai, Shenzhen and Beijing stock exchanges have drafted details to strengthen oversight of program trading, and started to solicit public opinions from Friday. 

The Securities Times reported on Sunday that those stock exchanges have set oversight standards on abnormal program trading, with trial being conducted internally.

Generally speaking, program trading is large-volume trading made by computer-generated algorithms. According to the draft rules released by the stock exchanges, each single account that makes 300 order submissions and cancellations within a second or over 20,000 such transactions in a day will be considered as having engaged in high-frequency trading.

The exchange may implement differentiated fees for high-frequency trading, set fees based on indicators including the number of submitted and withdrawal orders and frequency, and charge additional fees such as traffic fees and withdrawal fees, according to the stock exchanges.

The details were released as the China Securities Regulatory Commission (CSRC), China’s top securities regulator, issued trial regulation on quantitative trading in the stock market last month.

The rules on program trading provide clear guidance on program traders and will help maintain market trading order and fairness, Dong Shaopeng, a senior research fellow at the Chongyang Institute for Financial Studies at the Renmin University of China, told Global Times on Sunday.

He said the rules will boost financial firms engaged in quantitative trading to strengthen internal risk control, and thereby build a solid foundation for the stable development of these firms and better promote the high-quality development of China’s capital market.

As for their broader impact, the new rules will help maintain the transparency and fairness of capital market, reduce stock manipulation and protect smaller investors from abnormal trading activities, according to Dong.

In April, the State Council, China’s cabinet, released a new guideline on strengthening regulations, forestalling risks and promoting the high-quality development of capital markets. This was the third guideline document on the capital market circulated by  the State Council in two decades.

As the effects of strengthened supervision bear fruit, observers expect that the stock market will develop in a stabilized track across the year, with investor sentiment improving.

China’s stock market is expected to show better performance in June, as the property market continues to recover thanks to a series of targeted policies and listed companies’ profits are also expected to recover amid overall economic recovery, Yang Delong, chief economist at Shenzhen-based First Seafront Fund, told the Global Times.

Yang predicted greater volumes of international capital will flow to China, noting that the Chinese mainland and Hong Kong stock markets are good place to diversify investment portfolio.

In addition, he said State-owned capitals should accelerate investing in the capital market to stabilize market and elevate investors’ confidence.

UBS analysts said in a recent note sent to the Global Times that they believe China’s stock market is strengthening to a lasting recovery from a technical rebound. As a result, they said they have turned bullish on the market and further raised the year-end target for the MSCI China Index to 69, which would be a rise in the mid double digits from the current level.

Betting on potential opportunities in China’s opening-up and economic recovery, many international financial institutions have also actively stepped up their investments in China. For example, AllianceBernstein, a global asset management company, announced in May an increase in the registered capital of its branch in China from 200 million yuan ($27.62 million) to 300 million yuan.

Yang called for patience and confidence in China’s economy and stock markets, stressing that value investing will bring excess returns for investors.

Global Times

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