First it was malicious short-sellers that China’s stock market regulator, the CSRC, blamed for the wild swings seen on the nation’s stock market. Now, with volatility continuing despite their best efforts to stymie it, it appears that high-frequency trading, or HFT, is now being singled-out for contributing to the crazy market movements, in its opinion at least.
Overnight Chinese state-run newspaper the People’s Daily reported that program trading, or the trading of stocks or other products executed by a computer program, was detected in recent stock market volatility, according to an unnamed source at the CRSC.
“Some suspect accounts withdrew more than 80% of submitted orders, disturbing normal price signals”, they said, adding “as the market stabilizes and confidence remains fragile, the abnormal transactions of such accounts could seriously hurt market stability”.
The rapid placing and removal of orders, known as “spoofing”, is regarded as market manipulation. In order to move a particular stock or index, a trader places a large order only to cancel it seconds later, or sometimes sooner. The market will react to the order, allowing the manipulator to buy or sell at a profit.
The source noted that the CSRC should continue to increase supervision on program trading, as it may bring systemic risks if it is used to manipulate the market.
Indeed, despite a raft of measures designed to stifle market volatility – including banning some investors from selling and forcing some participants to buy, among others – the volatility in Chinese stocks has persisted in recent weeks.
The average daily percentage range of the benchmark Shanghai Composite index has been 5.13% since the start of July, up from 1.40% seen in 2014.
Clearly, based on those figures, the volatility in Chinese stocks isn’t abating at present, if anything it’s getting worse.
Will this latest measure from the CSRC achieve the desired result? Based on recent form it’s hard to believe it will.