KUALA LUMPUR, Sept 8 (Bernama) -- Bursa Malaysia closed almost flat on Tuesday as buying interest rotated away from index heavyweights towards smaller-cap construction stocks, with sentiment affected by geopolitical uncertainty, said an analyst. At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) eased 0.39 of a point to 1,714.40 from Monday’s close of 1,714.79. The benchmark index opened 1.65 points lower at 1,713.14 and moved between 1,710.44 and 1,714.50 throughout the trading session. The broader market was almost evenly balanced, with decliners leading gainers 548 to 546, while 598 counters were unchanged, 1,107 were untraded and 25 were suspended. Turnover expanded to 4.13 billion units valued at RM3.14 billion from 3.60 billion units valued at RM2.45 billion on Monday.
China is contemplating a substantial fee hike on high-frequency trading, aiming to curb strategies seen as unfair to retail investors in its stock market.
Key Points:
- Fee Hike Proposal: The China Securities Regulatory Commission (CSRC) and stock exchanges are considering increasing the current 0.1 yuan (1.4 cents) fee on buy and sell orders to at least one yuan for transactions that meet high-frequency trading thresholds.
- Exemptions: Regulators may grant exemptions to accounts with a monthly turnover rate lower than four times their total holdings to avoid impacting mutual funds using automated trades.
- Impact on Quantitative Hedge Funds: The proposed fee hike would affect quantitative hedge funds already facing restrictions, such as curbs on short selling.
- Current Market Share: Programmed trading accounts for about 29% of China's stock market turnover, with such investors holding about 5% of domestic A shares.
- Regulatory Concerns: The CSRC has highlighted that while programmed trading can enhance liquidity, it provides significant advantages in technology, information, and speed over smaller investors and can increase market volatility.
- Current Measures: Earlier this year, China introduced new rules for programmed transactions, imposed additional reporting requirements on high-frequency traders, and promised to raise costs to curb their advantages.
- Industry Defense: Top quant funds have published articles addressing misconceptions about the sector, defending the role of high-frequency trading.
- Definition and Decline: High-frequency trading is defined as more than 300 orders and cancellations per second or over 20,000 requests in a day. Such accounts have decreased by 20% to about 1,600 as of June 30.
- Increased Fees: If an order is identified as “high-frequency,” the 0.1 yuan fee may increase to at least one yuan, and the fee on cancelled trades could rise to five yuan.
Market Impact:
- Quant Hedge Funds: China’s 1.6 trillion yuan quant hedge fund industry faces challenges amid a declining stock market, with some researchers advocating for a ban on algorithmic trades.
- Turnover Rates: Quant strategies typically replace holdings every one to three weeks, leading to an annual turnover of 35 to 105 times.
- Mutual Funds: Over 100 mutual fund firms manage quant funds, with Fullgoal Fund Management Co running over 30 billion yuan of such products. These funds often face stricter risk control and higher trading costs compared to hedge funds.
Additional Measures:
- Commodities Market: China’s commodities exchanges have ended rebates on some automated trades, affecting high-frequency trading in that sector as well.
China's regulatory measures reflect a broader effort to balance market efficiency with fairness, particularly in a retail investor-dominated environment. The proposed fee increases are a significant step towards addressing the perceived inequities of high-frequency trading.
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