Jan 19 (Reuters) – China’s securities regulator has asked brokers to remove client-dedicated servers from data centers in local exchanges, a move that will deprive rapid-trading “flash boys” of an edge against other investors, people with knowledge of the matter said.
High-frequency traders in China have long used servers situated at data centers run by futures and stock exchanges and owned by brokers to execute trades as the physical adjacency shaves off milliseconds or even microseconds.
The tightening measure comes as the Chinese securities regulator steps up efforts to discourage market speculation and protect small investors, amid a runaway rally in the domestic market over the past year, which has triggered concerns about another boom-and-bust cycle.
The latest move on access to exchange data centers could send ripples across China’s market of high-frequency trading, which has lured foreign players including Citadel Securities and Jane Street Group.
The China Securities Regulatory Commission (CSRC) has asked brokerages in recent weeks to remove such servers, affecting both Chinese and foreign high-frequency traders, said one of the people who received the guidance.
The requirements are aimed at creating a level playing field, said another person with direct knowledge of the development.
“Previously, you were in the house. Now, you’re being driven out. It will likely trigger an industry shake-up” as some players will lose a key advantage, the person said.
The CSRC, Citadel Securities and Jane Street did not respond to Reuters’ request for comment.
The sources did not want to be named as they are not authorised to talk to media.
Bloomberg first reported on Friday, citing people familiar with the matter, that commodities futures exchanges in Shanghai and Guangzhou are among those that have ordered local brokers to shift servers for their clients out of data centers run by the bourses.
The sources told Reuters the guidance applies to all major exchanges overseen by the CSRC, including commodities futures exchanges and stock exchanges.
China’s major futures exchanges are based in Shanghai, Dalian, Zhengzhou and Guangzhou.
Shanghai, Dalian, Zhengzhou and Guangzhou exchanges did not immediately reply to Reuters requests for comment.
‘FAIR TRADING CONDITIONS’
China’s benchmark Shanghai Composite Index scaled decade-highs last week as turnover and leverage trades hit records. Some companies, especially those from the AI and semiconductor sectors, jumped as much as 700% in their local market debuts in recent weeks.
