CHINA’S securities regulator is investigating the impact of automated trading on the stock market, as authorities step up a crackdown on what they regard as heavy speculative selling that could destabilize the world’s second-largest economy.

    China’s stock market has lost around 30 percent of its value since mid-June, but authorities have been flailing in efforts over the past three weeks to prevent a further selloff.

    Fearing the turmoil could spill over into the wider economy, which had already been cooling, the government has enlisted the central bank, the State margin lender, commercial banks, brokerages, fund managers, insurers and pension funds to buy up shares, or help fund their purchase, to keep the stock market afloat.

    The China Securities Regulatory Commission (CSRC), the markets regulator, has stepped up scrutiny of share traders and their clients, launching investigations into “share dumping” and declaring war on “malicious short-sellers.”

    It is also asking financial institutions in Singapore and Hong Kong for stock trading records, sources with direct knowledge said, widening its pursuit of investors shorting Chinese stocks.

    The CSRC announced automated trading as the latest focus of its investigations Friday, as the stock market lost more ground.

    Wang Feng, chief executive of Alpha Squared Capital, a Chinese hedge fund, said the regulator was targeting automated trading programs that involved the frequent cancelling of bids, though he added that his firm did not employ this tactic.

    “The CSRC is only targeting those who use program trading to frequently submit and then cancel bids, thus disturbing the market and manipulating prices,” he said. “Such a practice is closely watched by regulators in the United States as well.”

    The CSRC identified 24 stock trading accounts where it said it had detected abnormal bids or bid cancelations. Later, the Shanghai and Shenzhen exchanges said these accounts would be suspended until Oct. 30.

    Amid the market turmoil, some foreign investors see an opportunity to buy, believing confidence will eventually return and private Chinese investors will come back to the market.

    “At some point, the magnitude of the Chinese market has to reflect its industrial might,” said Wang Yu-Min, chief investment officer at Nikko Asset Management, which oversees around US$170 billion.

    However, a Reuters poll showed that Chinese fund managers had cut the proportion of their portfolios to be invested in stocks over the next three months to a 6-1/2-year low.

    On Thursday, investors took fright at a newspaper report that banks were trying to get to grips with their financial exposure to the market slump, through wealth management products and loans collateralized with shares.

    There are also some worries about the impact of falling share prices on the real economy, though household ownership of shares is very low and — apart from a further drop in luxury car prices — there has been no concrete evidence yet of a major impact on consumption.

    However, the market rout has rekindled expectations that the People’s Bank of China will ease monetary policy further in the next few weeks. It has already cut interest rates four times since November and repeatedly loosened restrictions on bank lending.

    Japanese brokerage Nomura said in a note last week that it expected another 50 basis point cut to the reserve requirement ratio for banks, which would free up more money for lending, and another interest rate cut of 25 basis points before year-end.

    China’s Politburo, a decision-making body of the Communist Party, last week promised to step up targeted adjustments of economic policy to foster stable growth. (SD-Agencies)