Summary of Key Points
On August 28th, the Securities Association and the Fund Association jointly issued the "Guidelines for the Management of Securities Firms' Trading Information System Access (Trial)," aimed at regulating the way securities firms provide access to their trading systems to clients, especially private equity funds. The main requirements include: securities firms must treat all accessing clients fairly and not offer preferential treatment to any specific clients; the specific criteria for private equity funds to access the systems have been clarified; and firms are required to manage this entire process from before access is granted to daily operations and in the event of any anomalies, to prevent illegal activities such as off-exchange margin trading.
Detailed Explanation
Why Were These Guidelines Introduced? — To Address Issues of "Injustice" and "Non-Standardization"
Previously, some securities firms offered "special treatment" to major clients or those with connections, such as faster trading channels and more prioritized technical support, which put smaller clients and ordinary investors at a disadvantage in terms of trading speed (for example, when competing to buy shares at the limit up price, those with special channels could execute transactions first). Additionally, the standards for private equity funds to access securities firms' systems were not uniform, allowing some less qualified funds to enter the market, which could lead to risks (such as using the systems for illegal trading). These guidelines are designed to address these issues and make the market more fair and secure.
For example, in the past, a large institution might have obtained a "VIP interface" from a securities firm, allowing it to place orders 0.1 seconds faster than retail investors, which could result in significant profits in high-frequency trading. Now, the guidelines require all clients to use the same resources, ensuring a level playing field.
Private Equity Funds Need to Meet Certain Criteria to Access Securities Firms' Systems
The guidelines have established clear criteria for private equity funds to access the systems, which are divided into two parts: the private equity managers and the fund products:
- Private equity managers must meet four conditions:
1. The firm must have been established for at least one year, and its first product must have been registered for at least one year; it must have sound corporate governance, no major violations, and sufficient personnel (at least two technical staff members) to ensure system stability.
2. The firm must have dedicated compliance, risk control, and trading departments or personnel, with no one holding multiple roles.
3. Information disclosure must be true and accurate (e.g., regularly reporting fund performance without fraud).
4. If using automated trading programs, the firm must report to the regulatory authorities according to regulations.
- Private equity products must meet two conditions:
1. They must be registered with the Fund Association, and there must be a custodian to prevent the fund from absconding with funds.
2. If using automated trading, they must comply with relevant regulations (e.g., not using the programs to manipulate the market).
In other words, not just any private equity fund can access the securities firms' systems; only those that meet the required standards are allowed.
Securities Firms Must Monitor the Access Process Thoroughly
The guidelines require securities firms to manage the entire access process, including the following steps:
- Before access: Thoroughly verify the client's qualifications and the system's capability: Securities firms must conduct due diligence on the client's qualifications and the system's performance, and only grant access after confirming there are no issues.
- During daily operations: Monitor transactions and the system in real-time: Securities firms must set up monitoring systems to track clients' trading activities and the system's performance (e.g., for any abnormal orders or system failures).
- In case of anomalies: Respond promptly: If a securities firm discovers that a client is engaging in off-exchange margin trading, lending the interface to others, or if there are major system issues, it must take immediate action, such as suspending access and reporting to the authorities.
For example, if a private equity fund is using the system for off-exchange margin trading, the securities firm must immediately revoke its access and report the incident to the association.
Consequences for Violations — Both Securities Firms and Clients Will Be Held Liable
The guidelines specify clear violations and the corresponding penalties:
- Clients (such as private equity funds) cannot engage in the following activities: Off-exchange margin trading, illegally attracting clients, lending their systems to others, or handling trading instructions for third parties.
- Consequences for securities firms' violations: If a firm's risk control capabilities decline or if it commits serious violations (e.g., allowing unqualified clients to access the system), the association may suspend its new access requests or even revoke its registration, effectively preventing it from conducting this business.
For example, if a securities firm secretly allows a private equity fund that has not been established for a year to access its system, it may have its new access requests suspended, affecting its revenue.
The Impact of These Guidelines on the Market
- For ordinary investors: There will be no longer be "special channels" that give some clients an unfair advantage, making trading opportunities more equitable.
- For the private equity industry: Less qualified and non-standard firms will be eliminated, improving the health of the industry.
- For securities firms: They will be forced to enhance their risk control and management capabilities to avoid penalties for violations.
- For the entire market: The number of illegal transactions and system-related risks will decrease, making the market more stable.
In summary, these guidelines establish rules for the access of trading systems by securities firms and private equity funds, with the ultimate goal of protecting investors and making the market more regulated.
(The entire text is explained in plain language, making it easy for non-financial professionals to understand.)