REGULATORS in China are planning to increase their oversight of algorithmic traders, extending a campaign to stabilize the equity market that some analysts have blamed for shrinking volumes and an exodus by foreign investors.

    Under draft rules released by China’s securities regulator Friday, traders who use automated orders to buy and sell stocks would need to report certain information and wait for a review before they are allowed to execute their strategies.

    Orders shouldn’t originate from offshore computers or domestic systems that are remotely controlled from overseas, according to the proposal by the China Securities Regulatory Commission (CSRC).

    The plan is China’s latest effort to crack down on strategies blamed by authorities for exacerbating a US$5 trillion stock market rout. Volumes in the country’s equity-index futures collapsed last month amid government curbs on trading, while turnover in cash equities dropped to a one-year low Sept. 30.

    The CSRC’s proposal on algorithmic trades would further weigh on volumes, said Wen Zhimin, the Shenzhen-based chief strategy officer at Dacheng Fund Management Co.

    “Algo traders often have a very small time window to execute their strategies,” said Wen, whose firm’s algorithmic unit has been trading for more than three years. “They can’t do anything if approvals take too long.”

    China froze more than 30 trading accounts in August suspected of fueling volatility by using automated trading strategies. One of the accounts was owned by Citadel Securities, the U.S. trading firm started by Ken Griffin.

    Price swings on the Shanghai Composite Index have eased from their peak in August, with 10-day volatility plunging by more than half as turnover dried up.

    “Program trading is aimed at making money through arbitrage opportunities and it had an impact on destabilizing the market during the rout,” said Zhang Haidong, chief strategist at Jinkuang Investment Management in Shanghai. “The policy is now to rectify that.”

    Algorithmic trading is a “double-edged sword” and needs to be “strictly managed and limited,” the CSRC said in a statement.(SD-Agencies)