A Shanghai court has convicted a quantitative fund and several individuals, including a former Goldman Sachs analyst, for market manipulation related to stock lending. This ruling serves as a significant warning to China's private funds about the risks of ceding trading control.
This conviction and the subsequent regulatory actions signal a significant tightening of oversight on quantitative trading strategies in China, potentially impacting billions in assets and altering the landscape for domestic and international investment funds operating in the country.
A Shanghai court has handed down criminal sentences to a quantitative fund and several individuals, including a co-founder who previously worked at Goldman Sachs. This marks a rare crackdown on a gray-market trading practice in China and sends a stark warning to the country’s private funds that ceding trading control can trigger criminal liability.
Regulators are deepening restrictions on short selling, which jeopardizes long-short products managing an estimated 50 billion yuan ($6.8 billion). The China Securities Regulatory Commission has approved an increase in margin requirements, while China Securities Finance Corp., a major stock lending provider, will suspend its business of lending securities to brokerages.
These measures, coupled with explicit pledges to raise the costs of high-frequency trading, are piling pressure on quant funds that have already faced trading curbs and tightened rules this year, ranging from fundraising to programmed trading.