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'Deeply regrettable': Chinese hedge fund apologizes after trading ban over 'market disruption' in first punishment since Beijing pledged to curb stock market decline

An award-winning Chinese quant hedge fund has apologized to market authorities and investors after being punished with a trading ban Sell ​​off inventory on local exchanges, the first known case since the country's market regulator targeted trading activities that led to a three-year market outage.

Ningbo Lingjun Investment Management, which has assets of about 60 billion yuan ($8.3 billion), said it “deeply regrets” the negative impact its trading caused, as domestic financial markets said on Monday were open again after a week-long New Year's holiday, according to a statement on Wednesday.

“As a professional quantitative investment company, Lingjun Investment has a long-term optimistic view and always maintains a bullish stance on the Chinese stock market,” it said on its website. “We will improve trading models, strictly control trading progress and restrictions, and ensure a smooth and balanced trading process.”

The Bund Bull in Shanghai in February 2024. Photo: Bloomberg

The apology came after stock exchanges in Shanghai and Shenzhen on Tuesday suspended the hedge fund from trading for three days, blaming it for “market disruption.” Beijing this month appointed Wu Qing as head of China's securities regulator, which has vowed to curb securities lending and short selling, putting a limit on market sell-offs.

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The CSI 300 index, which tracks the largest stocks listed on both exchanges, slipped as much as 0.9 percent in the opening hour on Monday before closing up 1.2 percent, reflecting strong gains elsewhere during the holidays to catch up. The index is up less than 1 percent this year, after a cumulative decline of 41 percent since the start of 2021.

Cai Meijie, chairwoman and founder of Ningbo Lingjun Investment Management. Photo: Handout

Shanghai and Shenzhen exchanges froze all of Lingjun's trading accounts after she “disrupted normal market trading” with computer-generated sell orders on Monday, the exchanges said. These accounts sold 2.6 billion yuan worth of stocks within the first minute, contributing to a “sharp and rapid decline” in benchmark indexes.

“We will consistently implement the regulatory requirements and ensure strict and comprehensive supervision,” the exchanges said in separate statements. “We will strengthen oversight and maintain a 'zero tolerance' approach to illegal activities that disrupt the normal order of commerce.”

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Bridge in China flooded with tourists during Lunar New Year

Bridge in China flooded with tourists during Lunar New Year

In mitigation, Lingjun said it made a “significant transaction volume” within the first minute of trading on Monday and ended the day with a net purchase of 187 million yuan.

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Lingjun is the third-largest quantitative hedge fund in China, according to a ranking by local data provider Simuwang. The company was founded in 2014 by Chairman Cai Meijie, who previously worked at China International Capital Corp, Penghua Fund and Zheshang Fund, according to its website. Ma Zhiyu, the Stanford-educated investment chief, worked at New York hedge fund Millenium Partners.

Quantitative trading uses computer algorithms and programs to identify and exploit trading opportunities. It provides market liquidity and has obvious technology and speed advantages over small and medium-sized investors, which may lead to increased market volatility at certain times, the exchanges said.

Separately, the Shanghai and Shenzhen exchanges said they will expand reporting systems and tighten regulations on leveraged quantitative products. New investors, including external investors, using the Northbound link under the Stock Connect program must first register with the exchange before engaging in algorithmic trading on stocks.

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