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Exclusive-China scrutinizes quant strategies as market weakness stokes public anger

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As China's stock market struggles to recover, regulators have started to probe some hedge funds and brokerages on quantitative trading strategies amid a growing outcry against a sector able to profit from share price falls and volatility, sources said. The China Securities Regulatory Commission (CSRC) has checked with several major brokers over the past weeks about short-selling activities and trading strategies of their quant clients - funds that trade rapidly using derivatives and data-driven computer models, two people with direct knowledge of the probe said. Separately, the Shanghai and Shenzhen stock exchanges, under the CSRC's guidance, have sought information from major quant funds on their money-making strategies, another source said.

"They want to know the logic of the trading , the source of the profit; under which situation you hold net long, or net short positions ... and the reason behind buy and sell orders," the source said.

Global quant fund houses including Winton and Two Sigma have operations in China, but it's not clear if the foreign players are being probed. The weakness has triggered finger-pointing in social media, as well as criticism from fund managers and retail investors against these quant funds and short sellers.

"Brokerages in China are more willing to lend securities to quants for shortselling due to their active trading and commission contributions. But it's unfair to other market players who hardly have access to securities lending," said Yuan Yuwei, fund manager at Water Wisdom Asset Management.

 

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