China Securities Regulatory Commission to Reduce Size & Leverage of Direct Market Access, Used Widely in Highly Leveraged Quantitative Trading Strategies by Funds & Causing Recent Volatility in Stock Markets
2nd March 2024 | Hong Kong
The China Securities Regulatory Commission (CSRC) has announced to reduce the size & leverage of Direct Market Access (DMA), used widely in highly leveraged quantitative trading strategies by funds and causing recent volatility in stock markets. In February 2024, China $11 billion (CNY 60 billion) quant hedge fund Lingjun Investment Management was banned from trading for 3 days (20th to 22nd February 2024) on Shanghai & Shenzhen stock exchanges. Lingjun Investment large trading volume had affected normal trading orders between 930 am to 931 am on 19th February 2024 with both Shanghai & Shenzhen indexes falling. CSRC Notice (Google Translate): Q: Recently, some media reported that private equity funds’ DMA business has been tightened. What is the China Securities Regulatory Commission’s comment on this? Answer: The long-short income swap (DMA) is a market-neutral strategic transaction carried out between private equity funds and securities companies. The long-term private equity fund selects a basket of stocks and uses stock index futures to hedge, and obtains the hedging stock selection income. In the early stage, private equity funds experienced partial net value retracements during market fluctuations due to strategic reasons. Securities companies and private equity funds took the initiative to strengthen risk prevention and control, steadily reduce leverage and scale, and the risks were digested to a certain extent. According to data from China Securities Inter-Agency Quotation System Co., Ltd., the scale of DMA’s business has declined steadily since the market opened after the Spring Festival, and the average daily trading volume accounts for about 3% of the total market trading. The steady leverage reduction of DMA business will help prevent and control market risks and contribute to the stable and healthy operation of the market. In the next step, the China Securities Regulatory Commission will continue to strengthen supervision and improve the system of OTC derivatives businesses such as DMA, guide the industry to control business scale and leverage, severely crack down on illegal activities, and maintain the smooth operation of the market.”
“ China Securities Regulatory Commission to Reduce Size & Leverage of Direct Market Access, Used Widely in Highly Leveraged Quantitative Trading Strategies by Funds & Causing Recent Volatility in Stock Markets “
China $11 Billion Quant Hedge Fund Lingjun Investment Management Banned from Trading for 3 Days from 20th to 22nd February on Shanghai & Shenzhen Stock Exchanges, Lingjun Investment Large Trading Volume Affected Normal Trading Orders Between 930 am to 931 am on 19th February 2024 with Both Shanghai & Shenzhen Indexes Falling
21st February 2024 – China $11 billion (CNY 60 billion) quant hedge fund Lingjun Investment Management had been banned from trading for 3 days (20th to 22nd February 2024) on Shanghai & Shenzhen stock exchanges. Lingjun Investment large trading volume had affected normal trading orders between 930 am to 931 am on 19th February 2024 with both Shanghai & Shenzhen indexes falling.
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