As China Probes Stock Algos, Speed Traders Bet on Commodities

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China’s probe of algorithmic trading in the stock market has done nothing to dissuade high-frequency traders from using the nation’s burgeoning commodities exchanges.

Virtu Financial Inc., one of the world’s biggest high-speed firms, said on Wednesday it has started buying and selling commodities listed in mainland China. Optiver, which entered the nation’s commodities markets two years ago, said Tuesday it’s growing its business in Greater China. KCG Holdings Inc. said in June it sees opportunities in the region.

The expansion plans suggest computer-driven traders are keeping their resolve despite government intervention in Chinese equities, including a freeze on more than 30 accounts suspected of fueling volatility by using automated trading strategies. China, the world’s largest consumer of commodities, is seeking to extend its clout over raw-materials prices by opening up its own contracts to a larger pool of investors.

“Things will settle, things will get back to normal,” said Benedict Cheng, a Hong Kong-based managing consultant at capital markets advisory GreySpark Partners. “You have to put money in China.”

The country’s measures to stabilize stocks amid an almost $4 trillion rout are temporary, China’s market regulator said last week. Citadel Securities, the trading firm started by billionaire Ken Griffin, owns one of the 38 accounts frozen by Chinese exchanges. The authorities are investigating spoofing, a practice that involves placing then canceling orders to move prices.

New Contracts

Virtu reached an agreement during the second quarter with a Chinese brokerage house to provide liquidity on “a very limited basis,” according to Chief Executive Officer Doug Cifu.

“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.”

Optiver will hire analysts in Hong Kong and move its senior partner in Asia to the city. The Amsterdam-based firm trades commodities futures on the Shanghai and Dalian exchanges.

The Shanghai Gold Exchange started trading bullion in the free-trade zone, or FTZ, in September, giving foreign investors direct access to its precious metals market. The Shanghai Futures Exchange in March offered the same main contracts -- nickel and tin -- as the London Metals Exchange.

Trading Technologies International Inc., which has a derivatives-trading platform, plans to connect to the Shanghai International Energy Exchange Corp. when it offers yuan- denominated crude futures, said Chief Executive Officer Rick Lane.

“Firms specifically setting up within FTZs are betting on future regulatory benefits beyond a short-term horizon, this also remains the case with high-frequency traders,” said Nicholas Britz, an analyst at Shanghai-based Z-Ben Advisors.

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