Summary:
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China is removing high-speed traders’ servers from exchange data centres
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Futures exchanges in Shanghai and Guangzhou are enforcing the changes
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Domestic and global trading firms will be affected
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Latency advantages for high-frequency traders will be reduced
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Move aligns with broader push for market stability
China has moved to rein in high-speed and algorithmic trading by stripping one of the sector’s key advantages: ultra-fast access to exchange data centres. According to Bloomberg (gated), regulators have directed commodities exchanges to remove client servers, particularly those used by high-frequency traders, from facilities operated by the bourses themselves.
People familiar with the matter said futures exchanges in Shanghai and Guangzhou are among those ordering local brokers to relocate servers for their clients out of exchange-run data centres. While the measure affects a broad range of market participants, high-frequency trading firms are expected to feel the greatest impact due to their reliance on minimal latency.
Under the current timeline, the Shanghai Futures Exchange has told brokers that servers used by high-speed trading clients must be removed by the end of next month, with other clients facing a later deadline of April 30. The move is being led by regulators and applies to both domestic and foreign trading firms.
The clampdown is set to hit China’s large cohort of domestic quantitative funds, while also affecting major global players active in the country. Firms including Citadel Securities, Jane Street and Jump Trading are among those whose access to exchange-proximate servers is being curtailed, according to the people.
By forcing servers out of exchange facilities, authorities are undermining the speed advantage that high-frequency traders gain by colocating equipment close to matching engines. Even a delay of a few milliseconds can materially affect strategies in markets where execution speed is critical, particularly in stock index futures, commodities and convertible bonds.
Adding to the impact, some futures exchanges are considering imposing an additional two milliseconds of latency on servers connecting from third-party data centres, further narrowing the gap between high-speed traders and other investors.
The move forms part of a broader regulatory push to level the playing field and reinforce market stability after Chinese equities and futures rallied to multi-year highs. Regulators have recently tightened margin trading rules and increased scrutiny of certain exchange-traded fund trades, particularly those involving foreign market makers.
While high-frequency traders add liquidity, Chinese authorities have long been uneasy about the execution advantages they enjoy. This latest step signals a renewed determination to curb those benefits, even if it reshapes trading strategies and market dynamics.
This article was written by Eamonn Sheridan at investinglive.com.