Virtu Starts Trading in China as Regulator Cracks Down on Algos

Virtu Financial Inc., one of the world’s biggest high-speed trading firms, has started trading in its 35th country: China.

The company reached an agreement during the second quarter with a Chinese brokerage house to provide liquidity on “a very limited basis,” according to Virtu Chief Executive Officer Doug Cifu. Virtu is using automated market-making strategies to buy and sell commodities listed in mainland China. In other markets, it trades other assets including stocks and currencies.

“This agreement is the first step in what we view as a very long process,” Cifu said in a conference call on Wednesday. He did not identify the firm’s Chinese partner.

Chinese equities have plummeted since the middle of June, prompting the government to intervene in the stock market to prop up prices, even banning some shareholders from selling their stakes.

Mainland exchanges have frozen 38 accounts, including one owned by Citadel Securities, as the local authorities investigate algorithmic traders.

“We are certainly cognizant of the recent market volatility in China, and the regulatory scrutiny being placed on electronic trading by the local regulator,” Cifu said. “Long term, we view China as an established capital market with volumes comparable to the largest markets in which we operate.”

Virtu will confine its presence to Chinese data centers. It won’t be opening offices or “putting boots on the ground,” he said.

Chinese equity markets -- unlike, the stock markets in the U.S., Europe and Japan -- are largely dominated by retail investors. Automated market makers like New York-based Virtu have transformed trading in other parts of the world with their computer-driven strategies.

High-speed trader Optiver is also trying to build a bigger presence in China.

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