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 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., and some fear fresh probes could lead to tighter regulations on short-selling and certain financing activities by hedge funds.

A better understanding of various quant strategies may lead to regulators curbing those that contribute to market volatility, said one of the brokerage sources."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.

"DMA easily raises eyebrows as it involves high leverage, and allows quant funds to make a lot of money," said a brokerage source.

 

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