Submission + - China Clamps Down on High-Speed Traders, Removing Servers (yahoo.com)
An anonymous reader writes: China is pulling the plug on a key advantage held by high-frequency traders, removing servers dedicated to those firms out of local exchanges’ data centers, according to people familiar with the matter.
Commodities futures exchanges in Shanghai and Guangzhou are among those that have ordered local brokers to shift servers for their clients out of data centers run by the bourses, according to the people, who said the move was led by regulators.
The changes threaten a speed advantage that high-frequency traders, made famous by Michael Lewis’ bestseller , and quant hedge funds have long used to beat rivals. By using servers located in the exchanges’ own data centers, these firms can get slightly quicker execution than others — an edge in markets where every millisecond counts.
Futures exchanges have made preliminary plans to add two milliseconds of latency to any servers that connect from third-party computer rooms, two of the people said. It’s not clear if other exchanges are considering the same approach.
The delay will be in addition to the time lag trading firms experience from moving servers away from exchanges, the people said.
A delay of just a few milliseconds would be imperceptible to most investors but it could be enough to impact global firms’ high-frequency trading in stock index futures, convertible bonds and commodities. Some of their trading strategies may not be viable without the fastest access, though it’s unclear how the firms might adapt as they try to stay a step ahead of rivals.
China’s stock exchanges define high-frequency trading as more than 300 orders and cancellations per second through one account or more than 20,000 requests in a single day. Such accounts dropped 20% in 2024 to about 1,600 as of June 30 that year, the China Securities Regulatory Commission has said.
The attempt to shift high-frequency traders away from exchanges comes after Beijing’s years of unease with these firms, who add liquidity to markets but also enjoy execution advantages that are unthinkable for mom-and-pop investors.
Two years ago, regulators imposed tighter rules on automated stock trading. Officials have also threatened to raise fees on high-frequency traders, although so far they haven’t done so.
Commodities futures exchanges in Shanghai and Guangzhou are among those that have ordered local brokers to shift servers for their clients out of data centers run by the bourses, according to the people, who said the move was led by regulators.
The changes threaten a speed advantage that high-frequency traders, made famous by Michael Lewis’ bestseller , and quant hedge funds have long used to beat rivals. By using servers located in the exchanges’ own data centers, these firms can get slightly quicker execution than others — an edge in markets where every millisecond counts.
Futures exchanges have made preliminary plans to add two milliseconds of latency to any servers that connect from third-party computer rooms, two of the people said. It’s not clear if other exchanges are considering the same approach.
The delay will be in addition to the time lag trading firms experience from moving servers away from exchanges, the people said.
A delay of just a few milliseconds would be imperceptible to most investors but it could be enough to impact global firms’ high-frequency trading in stock index futures, convertible bonds and commodities. Some of their trading strategies may not be viable without the fastest access, though it’s unclear how the firms might adapt as they try to stay a step ahead of rivals.
China’s stock exchanges define high-frequency trading as more than 300 orders and cancellations per second through one account or more than 20,000 requests in a single day. Such accounts dropped 20% in 2024 to about 1,600 as of June 30 that year, the China Securities Regulatory Commission has said.
The attempt to shift high-frequency traders away from exchanges comes after Beijing’s years of unease with these firms, who add liquidity to markets but also enjoy execution advantages that are unthinkable for mom-and-pop investors.
Two years ago, regulators imposed tighter rules on automated stock trading. Officials have also threatened to raise fees on high-frequency traders, although so far they haven’t done so.