The regulatory arrangements for programmatic trading on the Shanghai and Shenzhen North Stock Exchanges were officially implemented.

On April 3, the Shanghai and Shenzhen North Stock Exchanges issued the Implementation Rules for the Administration of Programmatic Trading (hereinafter referred to as the "Rules") to solicit opinions on the relevant supporting business rules. The Detailed Rules stipulate four types of abnormal trading behaviors, clarify the criteria for identifying high-frequency trading, comprehensively regulate programmatic trading, and maintain trading order and market fairness.

What are the requirements of the Shanghai and Shenzhen North Stock Exchange for programmatic trading? What trading behaviors are the focus of monitoring? Jingtai interprets it for you.

Clarify the reporting path, time limit, content and change reporting requirements

First of all, the Detailed Rules clarify three main aspects:

Scope of application: This provision applies to the programmatic trading of stocks, bonds, funds, depositary receipts and other securities. Programmatic trading investors include customers who use member services, members themselves, mutual fund managers, and other institutions that use exchange trading units, such as insurance institutions.

Investor Obligations: This emphasizes that programmatic trading investors must trade in accordance with laws and regulations to ensure that the security of the exchange system or the normal trading order will not be affected.

Member Responsibility: Members are required not only to comply with the rules themselves, but also to be responsible for managing and supervising the programmatic trading behavior of their customers and providing fair and reasonable services.

Here are the regulations on report management:

Reporting path and requirements: If you plan to start programmatic trading, as an affiliate client, you need to report to your affiliate in advance; Those that use the exchange's trading unit directly will need to report directly to the exchange. If there are significant changes to the reported information, it is also necessary to update the information within the required timeframe.

Responsibilities of Members: Members need to pay close attention to and supervise the completion of necessary reporting work by customers, and at the same time conduct detailed verification of the information submitted by customers.

Role of the exchange: The exchange will confirm the information submitted in the report and check it regularly. For cases of failure to report as required, the exchange will alert relevant personnel and take corresponding self-discipline measures according to the situation.

Principles of penetrating reporting: If there are programmatic trading investors who trade for their clients through income swaps, then they are also required to report relevant customer information as required by the exchange.

Real-time monitoring of programmatic transactions

In terms of the management of trading behaviors, the "Detailed Rules" mainly clarify six aspects.

Key monitoring matters: The exchange will conduct real-time monitoring of programmatic trading, especially those abnormal behaviors such as abnormal instantaneous declaration speed, frequent and rapid order cancellation, frequent pull and suppression of stock prices, and a large number of transactions in a short period of time. If an account behaves close to regulatory metrics and performs similar trading behaviors multiple times, or attempts to circumvent regulation by splitting products, it will also be subject to monitoring.

Institutional compliance and risk control requirements: For institutional investors using programmatic trading, it is necessary to establish a sound compliance risk management system and transaction monitoring system to ensure that all transactions comply with regulations. The compliance of the transaction is also reviewed, monitored, and inspected by the relevant personnel.

Refusal of the Member's Entrustment: If the Client fails to fulfill the reporting obligation or refuses to cooperate with the verification and inspection, the Member has the right to refuse to accept their trading entrustment and even revoke the relevant declaration.

Responsibilities of Members and Other Institutions: Members and other institutions using the Exchange Trading Unit are required to incorporate programmatic trading into their own abnormal trading monitoring system, and promptly discover, manage and report any abnormal trading behaviors of themselves or their customers.

Handling of major abnormal fluctuations: When programmatic trading causes major abnormal fluctuations in the market, or unexpected circumstances such as force majeure may affect normal trading, the exchange can take measures such as restricting trading, suspending trading and suspending the market in accordance with relevant business rules.

Finally, the Detailed Rules also clarify the regulatory coordination arrangements for abnormal trading behaviors, so as to ensure that all parties can cooperate effectively to jointly maintain the stability and health of the market. The main purpose of these regulations is to ensure the security and transparency of programmatic trading, while protecting the fairness and stability of the market.

Provide relevant services to all kinds of customers reasonably and fairly

In terms of information system management, the Detailed Rules put forward five requirements:

First of all, all technical systems used for programmatic trading must comply with the technical specifications set by the exchange and be fully tested before use.

Monitor the order processing results: Members need to monitor the order processing results returned by the exchange in real time. If any material anomalies are detected, such as orders not being executed as expected or errors, the reporting of new orders should be suspended immediately.

Management of trading units and gateways: Members need to strengthen the management of trading units and gateways to ensure that they can provide services to all types of customers fairly and reasonably. Imagine you're running a restaurant, and you need to make sure that every customer receives the same great service, no matter what they order.

Fair Use of Colocation Resources: The Rules require members and other institutions who use colocation services to use these resources reasonably. At the same time, it stipulates the circumstances under which colocation services can be suspended under certain circumstances. It's like sharing the equipment in the gym, everyone has to follow the rules, and you can't take all the equipment by one person and not let others use it.

The Detailed Rules also mention the charging standards for market information. If the frequency of reporting and canceling orders of a programmatic trading investor is too high and exceeds a certain standard, the exchange may increase its fees.

Clarify the principle of consistency between domestic and foreign investment

In terms of the management of the Stock Connect and Shenzhen-Hong Kong Stock Connect, the Detailed Rules also clarify several key points:

The principle of consistency between domestic and foreign investment: In order to ensure the fairness of the market, both domestic and foreign funds need to follow the same rules when participating in programmatic transactions. It's like whether you're a local resident or an international visitor, you'll need to follow the same rules when using public transport.

Clarity of reporting path: For investors who trade programmatically through Stock Connect, they will need to report relevant information to SEHK participants, which will then be forwarded to the Shanghai and Shenzhen stock exchanges through The Stock Exchange of Hong Kong Limited.

Violation handling mechanism: If an investor fails to report as required or has abnormal trading behavior, the Shanghai and Shenzhen Stock Exchanges will deal with it in accordance with the relevant regulatory cooperation arrangements.