After a year of rapid asset expansion, China has tightened approvals for quantitative hedge funds, showing that officials are concerned about the potential market impact of trading driven by algorithms.
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The Asset Management Association of China, which approves registration of new quant funds, closed a fast-track channel in recent weeks for at least some managers, according to people with knowledge of the matter, which asked not to be named discussing private information. The people said that the association has rejected applications that use token amounts to launch new offerings.
The regular channel for approvals remains open, but it involves closer inspection, suggesting a slowdown in launches by quant funds after a five-fold increase in assets to $219 billion over the past two years.
In the past few months, authorities held discussions with top funds about the potential impact of computer-driven trading in the market. In September, China Securities Regulatory Commission Chairman Yi Huiman said that quantitative and high-frequency trading can cause issues like increased volatility and unfairness.
Regulators did not request any curbs on fund size or trading frequency, according to Bloomberg at the time. The statewide restriction of product approvals shows growing caution among officials.
Fast-track offered same-day product registration for firms that AMAC deems to be more compliant and better managed, allowing them to quickly roll out new offerings to support their growth. The people said that standard quant fund registrations are still being accepted as usual.
AMAC, overseen by the CSRC and oversees the registration of all private funds, didn't reply immediately to an emailed request for comment.
The combined assets at private quant firms now total about 1.4 trillion yuan, according to Citic Securities Co.
Some managers have been trading models stretched because of the rapid expansion. One of the largest quant hedge funds in China stopped taking new money after a 30 billion surge in assets this year strained its capacity to keep returns stable.
New products at top private quant firms have slumped this month, according to Shanghai Suntime Information Technology Co.
The people said that the fast-track channel for other actively managed hedge funds remains unaffected.
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