China watchdog probes automated trading as stocks slip again

Investors look downcast at a brokerage house in Fuyang city, East China's Anhui province, July 30, 2015. [Photo/IC]

China's securities watchdog is investigating the impact of automated trading on share markets, 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 main share markets, both among the world's five biggest exchanges, have lost around 30 percent of their value since mid-June, but authorities have been flailing in efforts over the past three weeks to prevent a further sell-off.

Fearing the turmoil could spill over into the wider economy, which had already been cooling, the country has enlisted the central bank, the state margin-lender, commercial banks, brokers, fund managers, insurers and pension funds to buy up shares, or help fund their purchase, to keep the Shanghai and Shenzhen markets afloat.

The China Securities Regulatory Commission (CSRC), the markets regulator, has stepped up scrutiny of share traders and their clients, launching investigations of "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 told Reuters, widening its pursuit of investors shorting Chinese stocks as Beijing struggles to stabilize queasy exchanges.

The CSRC announced automated trading as the latest focus of its investigations on Friday, as share markets 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 US as well."

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