Sunday Independent (Ireland)

High-frequency trader’s €90m fine in landmark Chinese case

Shanghai court hands out penalty after first criminal action brought in the country against a high-speed trading firm

- Bloomberg

CHINA handed out a €90m penalty and two suspended prison sentences in its first criminal case against a highspeed trading firm. The case had been closely watched by the trading community on the mainland, looking to shed light on Chinese authoritie­s’ stance on high-frequency trading, which remains a controvers­ial practice in jurisdicti­ons across the world. Yishidun Internatio­nal Trading was fined 300m yuan (€39m) for manipulati­ng China’s futures markets and ordered to disgorge 389m yuan (€50m) in profits. As well as the suspended sentences, two of its executives were fined a total of 1.8m yuan (€253,000), according to the Shanghai No. 1 Intermedia­te People’s Court.

Yishidun, also known as Eastern Dragon, said that it was one of a number of foreign-owned firms that China probed after the €4.5trn market crash in 2015. An independen­t audit of the company’s trading model did not find “anything consistent with ‘market manipulati­on,’ as this term is understood outside China,” the firm said.

“The court’s verdict does not suggest that Eastern Dragon’s trading strategy distorted the market, but that the trading system ED employed merely gave it a speed advantage over other traders,” the firm said in an emailed statement after the ruling.

“Because of this holding, the fine imposed by the court was at the lowest end of the options available to it.”

The ruling came a month after three brokers were fined for illegally facilitati­ng trading for the securities unit of Citadel LLC, and is a sign that penalties are starting to trickle down from China’s investigat­ions following the market rout. Dutch speed trader IMC BV was also investigat­ed, Bloomberg reported last year.

Compliance with market rules has been a focus of China Securities Regulatory Commission chairman Liu Shiyu since he joined the agency in February 2016, in the wake of the turmoil.

Gao Yan, an Yishidun executive, was given a three-year suspended prison sentence and fined 1m yuan (€130,500), while Liang Zezhong was given a two-and-a-half-year suspended sentence and fined 800,000 yuan (€105,000), according to the court’s announceme­nt.

Jin Wenxian, a broker at China Fortune Futures, was sentenced to five years in jail and fined 600,000 yuan (€78,000), the court said. “The sentence today is not as harsh as expected,” said Han Qian, an associate professor of finance at Wang Yanan Institute for Studies in Economics at Xiamen University, whose area of focus include high-frequency trading. “People viewed the case as very serious in nature.”

Gao’s lawyer declined to comment on whether her client would appeal against the ruling. Lawyers for Liang and Jin were not named by the court.

Yishidun, controlled by two Russians, illegally plugged its proprietar­y trading system into the China Financial Futures Exchange in early 2015, the court found. From June 1 to July 6 that year, the firm capitalise­d on the speed advantage gained by circumvent­ing brokerage systems to trade futures on the CSI 300 Index and CSI 500 Index. In total, it traded 3.77 million contracts and made illicit profit of 389m yuan (€51m), according to the statement. Yishidun also borrowed or purchased a total of 26 accounts for trading, according to the court.

Last month, the CSRC fined three domestic brokerages a total of 416m yuan (€54m) for violating margin financing and short-selling rules when facilitati­ng trades for Citadel during the 2015 rout.

 ??  ?? The court found that the trading system employed by Yishidun Internatio­nal Trading, or Eastern Dragon, gave it a speed advantage over other traders
The court found that the trading system employed by Yishidun Internatio­nal Trading, or Eastern Dragon, gave it a speed advantage over other traders

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