China Freezes Accounts of Quant Fund After It Dumped Stocks

(Bloomberg) -- China’s two main stock exchanges froze the accounts of a major quantitative hedge fund for three days after the money manager dumped 2.57 billion yuan ($360 million) in shares within a minute Monday.

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Ningbo Lingjun Investment Management Partnership executed the sell orders starting from 9:30 a.m. as shares declined, “disrupting normal trading order,” the Shenzhen exchange said in a statement Tuesday. The Shanghai bourse imposed a similar freeze on Lingjun, which will be barred from trading stocks until Feb. 22.

The trading ban is the latest move by Chinese regulators to reverse a slump in stocks that’s now entering a fourth year. Quant funds are drawing particular scrutiny amid concerns they can amplify market volatility and fuel routs. The sector has dismissed these concerns.

Lingjun’s selling orders amounted to “abnormal trading behavior,” and the firm was warned multiple times for the same reason this year, according to the Shenzhen statement. The bourse will tighten supervision and maintain “zero tolerance” on any activities that harm investors’ legitimate rights, it said.

The firm will “resolutely comply” with the bourses’ restrictions and learn its lesson, Lingjun said in a statement posted on its Wechat account. The investment accounts under its management bought a net 187 million yuan in shares on Monday, it added.

Lingjun has always been “bullish and long on the Chinese equity market, and we are always close to full stock positions,” the company said. It also pledged to ensure “smooth and balanced transactions” by improving its trading models and strictly controlling transaction processes. Lingjun is among the four-biggest quant funds in China, with more than 10 billion yuan under management.

In separate statements from the Shenzhen and Shanghai bourses late Tuesday, the authorities said quant trading made by northbound investors via the mainland to Hong Kong stock connect will also be included in the reporting scope to the exchanges.

China’s securities regulator made another move this week that underlines its resolve to shore up the nation’s $8.6 trillion stock market. The China Securities Regulatory Commission, led by new Chairman Wu Qing, will treat opinions, suggestions and criticism from all parties seriously and implement the “pragmatic and feasible” ones immediately, it said in a statement after holding a series of seminars with investors, listed companies and foreign institutions over the past two days.

China’s commodities exchanges ended commission rebates on some programmed trades this year, and regulators barred quants from cutting stock positions on certain products earlier this month in a bid to stem the market rout.

Various stimulus measures from Beijing have helped China stocks recover in recent days, though the benchmark CSI 300 Index is still down almost 1% for 2024, after dropping for three straight years.

--With assistance from Evelyn Yu and Jacob Gu.

(Updates with Ningbo Lingjun statement in fifth and sixth paragraphs)

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