Thailand’s plan to extend scrutiny on high-frequency trades — in impact from Monday — follows steps from China, the place programmed buying and selling will quickly be topic to real-time monitoring. Whereas authorities count on the strikes to reinforce transparency, the rising management over sure trades has raised concern that liquidity could tighten and make these markets total much less enticing.
“The present pattern of regulators tightening the regulation of excessive frequency buying and selling is considerably comprehensible but in addition worrying,” stated Gary Dugan, chief government officer of the World CIO Workplace. “The exercise of the HFT funds additionally brings liquidity to the markets – higher liquidity ought to result in the development within the environment friendly pricing of property.”
The controversial nature of such restrictions is on full show in South Korea, the place a short-selling ban damage its makes an attempt to win an improve from MSCI Inc. These developments present the difficulties policymakers have in maintaining with more and more subtle buying and selling methods and their affect on monetary markets, a problem that’s solely set to develop with the adoption of synthetic intelligence.
ETMarkets.comThe restrictions, sometimes launched when inventory markets had been below strain, have managed to cease the bleeding however their longer-term affect is below debate given the expansion of computer-aided buying and selling.
Quantitative methods are based mostly off knowledge science and systematic strategies, with some utilizing large knowledge to time markets, comply with traits or execute arbitrage trades.
China’s clampdown on quant buying and selling got here in February when the inventory market was at multi-year lows. With the added assist from purchases by state funds, shares staged a rebound however have began to fall once more since late Could.
Thailand’s SET Index has fallen about 8% this yr, turning it into one of many area’s worst nation benchmarks. The inventory change stated it’s going to require high-frequency merchants to register earlier than they’ll place orders. The measures are a part of a bundle of guidelines to revive calm amid concern over the affect of unlawful quick promoting, program buying and selling and company scandals.
“Policymakers in these markets may view volatility as the first offender for underperformance,” stated Hebe Chen, an analyst at IG Markets Ltd. “In smaller markets like Malaysia, the place the mixture of efficiency and volatility is extra just like China and Korea, the chances of making their very own security web can’t be dominated out.”
Chen added that international locations which can be extra carefully related to world traders, resembling Japan and Singapore, are unlikely to use such restrictions as they search to align with the “common guidelines of the sport.”
ETMarkets.comAs restrictions look set to remain for now, market watchers warn of a chilling affect on buying and selling actions and a possible blow to the governments’ popularity.
China’s quantitative hedge funds noticed their property drop within the first quarter for the primary time since late 2022, in keeping with estimates by Citic Securities Co.
In South Korea, quant funds are eyeing elsewhere as the federal government prolonged the short-sale ban by the top of March 2025.
“Because it turned unimaginable to make use of varied methods in South Korea, they’re saying goodbye to the South Korean market and doing arbitrage trades as an alternative in Japan and Hong Kong,” stated Jung In Yun, chief government officer at Fibonacci Asset Administration World Pte.
To make certain, some have welcomed the restrictions as they’ll cut back short-term speculative trades. George Molina, head of buying and selling for Templeton World Investments, stated the principles are “wanted to regulate for what had been arguably loopholes within the system.”
It’s a view echoed by Wei Li, multi-asset quant options portfolio supervisor for BNP Paribas Asset Administration, who stated such measures can contribute to a extra steady and clear market surroundings and finally profit all individuals.
Governments in superior international locations together with the US and Europe have additionally resorted to non permanent restrictions in occasions of economic stress, such because the 2008 ban on quick promoting of economic shares within the US and varied curbs on the onset of the pandemic.
The “final affect” will rely upon how properly rules are balanced to guard traders with out stifling market effectivity and innovation, stated Charu Chanana, a strategist at Saxo Markets. “AI can result in extra algorithmic buying and selling that stay susceptible to sudden and excessive market actions. Regulation in Asia will probably be gradual to reply to developments in AI, and precautionary measures could due to this fact stay extra stringent.”
