In response to market declines, regulators in Asia are increasing oversight on trades favored by hedge funds, aiming to stabilize markets despite concerns that these efforts could potentially hamper essential strategies.
Thailand is set to intensify monitoring of high-frequency trading starting on Monday, mirroring actions taken in China where programmed trading will soon face real-time supervision. The Thai SET Index has experienced an approximate 8% decrease this year, positioning it as one of the weakest country benchmarks in the region. The stock exchange announced that high-frequency traders will need to register before executing orders.
These measures form part of a set of regulations implemented to restore tranquility amid worries about the ramifications of unlawful short selling, program trading, and corporate malfeasance. While authorities anticipate enhanced transparency as a result of these measures, the tightening control over specific trades has ignited concerns about potential liquidity constraints and the overall attractiveness of the markets.
Gary Dugan, CEO of the Global CIO Office, expressed mixed sentiments about the increasing regulations, stating, “The current trend of regulators tightening the regulation of high-frequency trading is somewhat understandable but also worrying,” mentioning that HFT activities contribute to market liquidity, which should aid in more efficient asset pricing.
The complexities surrounding these restrictions are exemplified in South Korea, where a short-selling prohibition hindered efforts to secure an upgrade from MSCI Inc. These developments highlight the challenges faced by policymakers in keeping pace with increasingly sophisticated trading methods and their influence on financial markets, a challenge anticipated to escalate with the integration of artificial intelligence.
Quantitative strategies rely on data science and systematic approaches, with some leveraging big data to time markets, track trends, or perform arbitrage deals. China’s crackdown on quantitative trading coincided with historically low stock market levels in February. Despite a market rebound supported by state fund acquisitions, shares have recently started to decline again since late May.
As the restrictions persist, market observers caution against the chilling effect on trading activities and the potential dent on governments’ reputations. It remains to be seen how regulations are delicately balanced to safeguard investors without impeding market efficiency and innovation, particularly in light of the increasing utilization of artificial intelligence in trading.
