CHINA’S two main stock exchanges have vowed to tighten supervision of quantitative trading after freezing the accounts of a major fund for three days, as part of wider regulatory efforts to revive market confidence.

The Shenzhen and Shanghai stock exchanges Tuesday said major quant fund Lingjun Investment had broken rules on orderly trading and barred it from buying and selling for three days.

Lingjun dumped a combined 2.57 billion yuan (US$357 million) in shares within a minute Monday when indices fell rapidly, the Shenzhen and Shanghai exchanges said, adding they would restrict the hedge fund’s trading until Feb. 22.

The Shanghai and Shenzhen bourses will enhance monitoring of quant trading, especially leveraged products. They will expand the scope of required reporting of such trades to those by offshore investors via the northbound mainland-to-Hong Kong stock connect and treat foreign and domestic funds the same.

One of China’s biggest quant funds, Lingjun manages more than 60 billion yuan, the company says on its website.

Lingjun apologized for the negative impact in a statement on its website yesterday. The firm said it “holds long-term bullish views on Chinese stocks and will stick to long positions,” adding it will review the problems existing in transactions.

The two exchanges’ moves mark an escalation in regulators’ efforts to tighten scrutiny of quant hedge funds following their rapid expansion in recent years.

While quant trading can help with market liquidity and price discovery, such trades have “obvious technology, information and speed advantages” over smaller investors and can “amplify market volatilities” at certain points, the exchanges said.

Such transactions, especially high-frequency trading, are often regulated more strictly in overseas markets to “prevent negative impact on market order,” they added.

“Regulators are sending a clear signal that money should be handed to managers who profit from long-term investment, rather than swift trades,” Yang Tingwu, vice general manager of Tongheng Investment, said.

As regulators seek to revive market confidence, China’s securities watchdog, led by new chairman Wu Qing, held a series of seminars with market participants who proposed tighter scrutiny. (SD-Agencies)