Programmed transaction

The background of regulatory regulations

The provisions on the Management of programmed Trading in the Securities Market (for trial implementation) (hereinafter referred to as "Administrative regulations") is an important regulation formulated by the China Securities Regulatory Commission to strengthen the supervision of programmed trading in the securities market (the market is usually referred to as quantitative trading), to maintain the order of securities trading and the fairness of the market.

Procedural trading has a history of about 20 years in China, and its positive role is obvious to all, but many problems caused by it are often criticized. On the one hand, programmed trading helps to provide liquidity for the market and promote price discovery, but on the other hand, programmed trading, especially high-frequency trading, has obvious advantages in technology, information and speed compared with medium and small investors. At some time, there are also problems such as strategic convergence and trading resonance, which increase market volatility. In addition, some illegal trading activities not only hurt other investors (such as Easton International Trading Co., Ltd., Zhangjiagang Free Trade Zone, Golden documents, etc.), but also undermine the stability of the market. Therefore, it is necessary to have an independent regulation on procedural trading in order to maintain the fairness and fairness of the market and effectively protect the interests of investors and promote the high-quality development of the securities market.

The new "National Nine articles" issued in April this year especially emphasized the clear requirements of "issuing procedural trading regulations and strengthening the supervision of high-frequency quantitative trading". Procedural trading has been formally incorporated into the "1N" policy system of the capital market. The release of the official draft of the Management regulations makes the procedural transaction an important step on the track of the legal system, and is of far-reaching significance to the future development of the capital market.

Focus on maintaining the stability of the market

1. Strengthen market transparency

In view of the poor transparency of procedural transactions, the Management regulations clearly require programmed trading investors to report basic account information, capital information, trading information, software information and other contents in accordance with the regulations, and implement the principle of "report first and then trade". The stock exchange may conduct on-site or off-site inspections on the relevant institutions and individuals involved in programmed transactions, and focus on the relevant institutions and individuals who frequently report discrepancies between the reporting information and the trading behavior.

2. Promote market fairness and fairness

In view of the fact that procedural trading will affect the fairness and fairness of the market, the Management regulations are regulated from the following aspectsFreearcadegamesonline:

First, in terms of information system management, securities firms and stock exchanges should be fair and reasonable in providing services and allocating resources.

Second, in view of the speed advantage of high-frequency trading, differential supervision is implemented, the definition of high-frequency trading is defined, and differential regulatory requirements are put forward from the aspects of reporting information, charging and transaction monitoring, reflecting the regulatory thinking of "seeking advantages and avoiding disadvantages and standardizing development". In order to maintain market order and fairness

Third, in view of the procedural trading of northbound funds, the Management regulations clearly define the regulatory requirements for northward procedural transactions, incorporate them into report management in accordance with the principle of consistency between domestic and foreign capital, and implement transaction monitoring standards. The regulation of procedural transactions of northbound investors is not based on special examination or differential treatment, but on the principle of fairness and equal treatment. Such regulatory measures are designed to ensure that all investors are treated fairly in the trading and regulatory process, so as to effectively safeguard the fairness and fairness of the market.

3. Maintain market security and stability

In view of the fact that programmed transactions often destroy the security and stability of the market, the Management regulations focus on the following aspects:

First, the requirements of the system. The Administrative regulations require the market entities related to procedural trading, the Stock Exchange, the China Securities Industry Association and the China Securities Investment Fund Association, to formulate business rules related to procedural trading in accordance with their duties, and to exercise self-discipline in the activities related to procedural trading. Securities companies, public fund managers, private fund managers, qualified foreign investors and other institutions shall formulate special business management and compliance risk control systems for programmed transactions, and improve the audit and monitoring system of programmed trading orders, prevent and control business risks.

The second is the risk control requirements. The Management regulations require the stock exchange to monitor the programmed trading in real time, focus on the abnormal trading behavior, and regulate the abnormal trading from both qualitative and quantitative dimensions. Abnormal trading behaviors that may affect the security of the stock exchange system or trading order, such as a large number of declarations and withdrawals within a short period of time, large, continuous or intensive declarations and transactions, will be monitored. The regulations also require stock exchanges, China Financial Futures Exchange, China Securities Industry Association, China Securities Investment Fund Industry Association, China Securities data Co., Ltd., to establish a programmed trading information statistics and monitoring mechanism, and to co-ordinate the implementation of procedural trading cross-exchange cross-market information sharing and monitoring. The "Management regulations" compacts the customer management responsibilities of securities firms, standardizes the model entrustment agreements signed between securities companies and programmed trading customers, and adds new requirements for securities companies to examine the client's programmed trading entrustment instructions. Securities companies shall strengthen the monitoring of their clients' programmed trading behavior, review the programmed trading entrustment instructions in strict accordance with the provisions of the stock exchange, identify, manage and report clients' suspected abnormal trading behavior in a timely manner, and cooperate with the stock exchange to take relevant measures.

The Management regulations also provide for the access of trading information systems from the perspectives of securities firms and programmed trading customers, requiring securities firms to provide services for customers' programmed transactions through technical means such as trading information system access, it shall be included in the compliance risk control system and the whole process management mechanism shall be established. For programmed trading customers, they shall not use the system to illegally engage in securities business, illegally solicit investors or deal with third-party trading orders, illegally transfer or lend their own investment trading systems, or provide system access for third parties.

The "Management Regulations" also refine the management requirements for institutional investors participating in programmatic transactions, require the formulation and establishment of order review and monitoring systems, and require compliance risk control personnel to review their own and customers 'compliance and be responsible for related risks. management work. If investors conduct programmatic transactions and may cause major abnormal fluctuations or affect the normal conduct of securities transactions due to sudden events such as force majeure, accidents, major technical failures, and major human errors, they shall immediately take measures such as suspending trading and revoking entrustment. Relevant responsible personnel responsible for compliance risk control of securities companies, public fund managers, private fund managers, qualified foreign investors and other institutions shall review, supervise and inspect the compliance of their own institutions and clients 'procedural transactions, and Be responsible for relevant risk management work. Therefore, the focus of compliance risk control will move forward to the early development stage of programmatic trading strategy model algorithms. At this stage, compliance risk control personnel should actively participate and work closely with investment researchers and technical personnel to jointly improve the review and monitoring mechanism of programmatic transactions to ensure that compliance risk control can fully cover the entire process of programmatic transactions, thereby Effectively prevent potential risks.

The third is the penalty regulations. The "Administrative Regulations" emphasize that for institutions and individuals related to procedural transactions that violate relevant regulations, stock exchanges and industry associations will take management measures in accordance with regulations, and the CSRC and its dispatched offices may take regulatory measures or impose penalties in accordance with the law. This regulation will help strengthen supervision and ensure the effective implementation of the Management Regulations.

Programming the future

Impact of trading business

The official release of the "Management Regulations" reflects that the regulatory authorities adhere to the overall thinking of "seeking benefits and avoiding disadvantages, highlighting fairness, effective supervision, and standardizing development" on the development path of programmatic transactions. The "Management Regulations" clarify the definition and overall requirements of programmatic transactions, provide a clear operating framework for programmatic transactions in the securities market, and will have a profound impact on the programmatic transaction business model.

In the short term, as the "Management Regulations" increase reporting, systems, strategies, risk control and differentiated charges requirements for programmatic traders, corresponding operating costs will increase and profitability will decline. However, since the vast majority of such traders in my country are trading in medium and low-frequency frequencies, the estimated impact is extremely limited. Relatively speaking, the short-term profitability of some high-frequency traders will decline significantly. However, in the long run, the promulgation of the "Management Regulations" will enable my country's procedural transactions to develop steadily towards the track of legalization.

Experience in the development of mature overseas markets tells us that my country has a lot of room for future development of programmatic transactions. This is because my country's programmatic transactions, especially high-frequency transactions, have a short development time, accounting for about 30% of the average trading volume in the stock market. Compared with the share of programmatic transactions in overseas developed markets, which reaches about 70% of the trading volume in the stock market. There is a big gap.

In addition, it is particularly important to emphasize that the new regulatory environment will encourage domestic procedural traders to make full use of financial technology and continuously innovate strategies, algorithms and business models, so that they will remain invincible in competing with foreign investors in the process of internationalization of the securities market.