China Orders Removal of Client Servers from Exchange Data Centers, Targeting High-Frequency Traders

China’s securities regulator has directed brokers to remove client-dedicated servers from exchange-run data centers, a move expected to eliminate speed advantages for high-frequency traders, sources said. The action, part of broader efforts to curb speculation and ensure fair trading, affects both domestic and foreign firms operating in China’s stock and futures markets. The requirement, issued by the China Securities Regulatory Commission (CSRC), aims to level the playing field amid record market rallies. The Shanghai Composite Index hit decade-highs last week, with some AI and semiconductor stocks surging up to 700% at debut. The CSRC also tightened margin rules and reiterated its commitment to curbing excessive speculation. High-frequency traders, often dubbed “flash boys,” have relied on co-location at exchange data centers to shave milliseconds off trade execution. The shift could disrupt the $222.6 billion quant fund industry in China, estimated at 1.55 trillion yuan in 2023 by Citic Securities. Regulators cite concerns over market stability and a preference for long-term investment over speculative activity. The CSRC, Citadel Securities, and Jane Street did not respond to requests for comment. Exchange officials in Shanghai, Dalian, Zhengzhou, and Guangzhou declined to comment. The EU and India have also tightened oversight of algorithmic and high-frequency trading in recent years.