High-Speed Trader IMC Under China Stock-Index Futures Probe

Updated on
  • Dutch firm is in discussions with regulator, says spokesman
  • Investigation came in wake of last year’s market crash

IMC BV, a Dutch high-speed trading firm, is being investigated by authorities in China for its activities in the country’s stock-index futures market last year.

QuickTake Trading on Speed

The firm has received inquiries from the China Securities Regulatory Commission related to futures trading at its Shanghai-based affiliate, said Ian Bickerton, a spokesman for IMC. Discussions between IMC and the regulator have been constructive and positive, Bickerton said. The CSRC didn’t reply to a fax seeking comment.

“IMC has confirmed with external counsel that its futures trading activity in China complied with all applicable regulations and exchange rules,” Bickerton said by e-mail. “IMC is very confident that, after reviewing the information provided by IMC, the CSRC will resolve its inquiries positively.”

The probe is the latest example of China’s crackdown on high-speed traders in the wake of last year’s market rout. Yishidun International Trading was earlier this month charged with manipulation by prosecutors in Shanghai, while a draft rule on automated trading that would have been among the strictest in the world was published late last year. The draft was reportedly put on hold, though the regulator has yet to comment.

To read a QuickTake explainer about high-speed trading, click here.

“From past experience, if the CSRC announced publicly when it started an investigation, it will mostly likely end up with a fine,” Ken Chen, a Shanghai-based analyst with KGI Securities, said, speaking generally. “If there was no public announcement, there is a possibility that the investigation will be terminated without a fine.”

China’s $6.5 trillion equity market is free from HFT because buying and selling a stock in the same day is banned. But some derivatives contracts, including stock-index futures, are available to super-fast traders, whose interest helped China’s index futures market briefly become the world’s biggest last year.

Boom and Bust

Regulators blamed the heightened activity for helping fuel the stock boom and subsequent bust, and in response imposed curbs that cut volume by 99 percent. The curbs remain in force, though regulators are said to be planning on easing them.

Shanghai prosecutors said on Aug. 4 they have charged Yishidun, with a criminal case likely to begin in the next three months. Yishidun is alleged to have self-traded and also placed large batches of orders far away from the market price, the official Xinhua News Agency reported in November, citing the Shanghai police. The hearings are expected to offer a view into how Chinese authorities view high-frequency trading. A spokesman for Yishidun said the firm “is ready to defend its position in court when required to do so.”

There are as yet no formal rules governing HFT on the mainland. The CSRC in October released draft rules proposing that traders who use automated orders must report certain information and wait for a review before they’re allowed to execute their strategies. The plans were put on hold in May, according to local media. The CSRC didn’t respond to a fax seeking comment on the status of the proposals.

IMC was founded in Amsterdam in 1989 by two traders working on an options exchange, and operates both a trading unit and an asset-management division. The firm conducts transactions on 100 markets around the world and also has offices in New York, Chicago, Zug, Switzerland, and Sydney, according to its website. IMC is a designated market-maker on the New York Stock Exchange.

— With assistance by Gary Gao, and David De Jong

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