China Moves to Curb ‘Flash Boys’ Access to Exchange Data
China’s securities regulator has ordered brokers to remove client-specific servers from data centres operated by local exchanges, a step that will limit high-frequency traders’ ability to gain an ultra-fast advantage over other market participants, according to people familiar with the matter.
Regulators Target Speculation and Uneven Trading
High-frequency traders in China have long benefited from locating their servers close to exchange systems, reducing trade execution times by mere microseconds. However, the China Securities Regulatory Commission (CSRC) is now taking steps to prevent what it sees as excessive speculation and unfair trading advantages.
The move follows a year of surging domestic market activity and growing concern about another potential boom-and-bust cycle. The new requirement applies to all major exchanges overseen by the CSRC, including those in Shanghai, Dalian, Zhengzhou, and Guangzhou.
An individual familiar with the development said the guidance aims to establish a level playing field for all investors. “Previously, you were in the house. Now, you’re being driven out. It will likely trigger an industry shake-up,” the person noted, suggesting that some high-frequency traders could lose a significant competitive edge.
Foreign Firms and Local Brokers Affected
Both Chinese and foreign trading firms, including global players such as Citadel Securities and Jane Street Group, are affected by the directive. These companies have used proximity-based trading strategies to benefit from rapid access to market data.
The CSRC and the firms mentioned did not respond to Reuters’ requests for comment. According to Bloomberg, several commodities futures exchanges in Shanghai and Guangzhou have already instructed brokers to relocate servers for their clients.
The shift could also impact Chinese futures brokerages, which have traditionally hosted a large number of high-frequency trading clients.
Ensuring Fairer Market Conditions
The regulatory clampdown comes as China’s benchmark Shanghai Composite Index reached decade highs last week, with trading volumes and leverage hitting records. In response, the CSRC tightened margin requirements and vowed to maintain market fairness by curbing speculative behaviour.
Shane Oliver, chief economist at AMP, said the move reflected Beijing’s determination to steer markets toward long-term investment. “They want traders focused on value rather than speculation. High-frequency trading is seen as destabilising,” he said.
Although there is no official data on China’s high-frequency trading market, Citic Securities estimated the country’s broader quant fund industry to be worth about 1.55 trillion yuan ($222.6 billion) in 2023.
The latest measure follows several regulatory steps since 2024 to control programme and high-frequency trading after a sudden market crash dubbed China’s “quant quake.” Other regions, including the European Union and India, have also tightened scrutiny over algorithmic and high-speed trading in recent years.
with inputs from Reuters
