China Strengthens Market Surveillance

Terry Flanagan

China is implementing market surveillance intended to curb high-frequency and algorithmic trading practices, similar to those being adopted in other countries.

At the same time, financial institution are beefing up their risk management systems in order to accommodate anticipated regulatory and market changes.

”Chinese risk managers are navigating domestic deregulation, increased trade volumes and trade complexity and expanding business demands,” said Richard Zhu, chief operating officer of SunGard China. “They need to ensure that the risk position is accurately measured, communicated and understood throughout the organization.”

The Shanghai Stock Exchange said that it plans to boost market supervision by imposing trading limits on “accounts with such abnormal trading behaviors as making orders in a large sum or at high prices, or conducting frequent false orders and withdrawals.”

Should an account fail to correct its rule-breaking behaviors within a certain period, the SSE will identify them as unqualified investors, impose trading restrictions for several days on them and file with the China Securities Regulatory Commission for punishment, with an aim to more accurately and effectively crack down on rule-breaking behaviors.

Guangfa (GF) Securities, one of the largest securities brokers in China, is building a StreamBase CEP-based trading system, which it says will be the fastest in China, and includes innovative rapid pairs trading and order execution algorithms.

GF has a small specialist team that have re-used open-source components from the StreamBase Component Exchange and extended them with their knowledge of the Chinese micro-market structure.

In recent months, Progress Software has announced deals with Nanhua Futures, a Chinese futures broker, and CITIC Securities Co., China’s largest investment bank by asset value, to use its Progress Apama Algorithmic Trading Platform.

Nanhua Futures will use the Progress Apama platform to strengthen its market position in Hong Kong, as well as to connect to Chicago Mercantile Exchange (CME) as well as other global exchanges.

Nanhua Futures will be able to use its own sophisticated trading algorithms to automatically trade across multiple exchanges, and to monitor a number of different trades in real-time, according to Progress Software.

CITIC Securities tapped the Apama platform in response to the growing demand from institutional investors in China for access to low-latency algorithmic and high-frequency trading strategies across multiple asset classes.

Apama algorithmic trading platform will enable CITIC Securities traders to create customized execution algorithms that operate on domestic markets, and to offer pre-packaged, customized strategies for institutional investors, thereby shortening the time to market for new strategies.

According to a survey by Celent, based on interviews with risk managers from large Chinese banks, securities firms and asset management companies, only 11% of large financial institutions believed that their existing systems could meet their risk management needs.

In order to compete effectively on the global stage financial institutions in China need to enhance their risk management capabilities by improving their enterprise-wide analysis of risk management data, improve their technology, build on new frameworks such as Basel III and improve their business processes, said Snail Katkov, senior vice president, Asia, at Celent.

Operational risk and market risk were revealed to be major areas of investment for financial institutions: 38% of firms surveyed were focused on enhancing operational risk, while 30% placed priority of strengthening their management of market risk.

Risk management capabilities among asset management firms were highly varied and would need integrated, multi-asset portfolio and risk management technologies to cope with investor sophistication and a broad range of financial products.

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