Chapter 23: A Letter of Warning

One day ago, at the monitoring center of the Shanghai Stock Exchange.

Dozens of screens displayed a continuous stream of real-time trading data, with red and green numbers scrolling incessantly.

"Boss, take a look at this. These accounts seem a bit abnormal," a staff member called over the shift supervisor.

"What's the issue?"

"Look, Boss. The trading operations of these five accounts are identical. Furthermore, their intraday T-trade win rate is consistent, reaching as high as 91%. That would be fine on its own, but look at this..."

He pointed to several buy and sell points. "Logically speaking, buy and sell points shouldn't look like this. This person is operating almost the entire time the market is open. I suspect it's quantitative trading, but compared to standard quant trading, isn't the trading frequency a bit too low?"

The shift supervisor nodded. "How long has this been going on?"

"About three days now. And these five accounts only trade gold ETFs. It’s truly bizarre. If it really is a quant model, it shouldn't be like this, right?"

The supervisor took the mouse, examined several other indicator curves, and smiled. "Before this, these five individuals were clearly novices; there's no way they were the high-level T-traders they appear to be now. But look at them today—they are absolute masters of T-trading. With such precise operations, it’s almost certain this is a quantitative trading model. And this isn't just a one-off; it’s been happening consistently for two or three days. Do you think a human could pull that off?"

"But Boss, who uses a quant model just for gold? And with such little capital? Does that even make sense?" Training a model comes with costs. Based on all the quant models they had reviewed, the overhead alone could cost ten or twenty thousand a day, not counting R&D costs. Yet, looking at the returns on these accounts, they weren't even making a few hundred dollars a day.

"Is this like using a cannon to kill a mosquito?"

"I don't know. I've never seen this kind of strategy. Regardless, they haven't registered it. Freeze the accounts and issue a warning letter. Also, send a warning to the corresponding brokerage firms—how are they conducting their oversight?"

"Understood."

Beyond the Shanghai Stock Exchange, the China Securities Regulatory Commission (CSRC) also detected the anomaly with these five accounts. Two or three days of accumulation had triggered the system’s warning for the accounts belonging to Zhou Yun and his four companions.

"Hm? What a strange set of trading accounts," the regulator remarked, looking at the data on the screen with interest. After analyzing it for quite a while, he reached the same conclusion. "Isn't this like using a cannon to kill a mosquito?"

Unlike the exchange, the CSRC had the legal authority to access the information of the account holders and associated personnel. Online, this process is known as "doxxing," though in this case, it was entirely legal.

The regulator followed protocol to review the accounts of Zhou Yun and his group. As he looked at their personal information, his expression became even more curious.

"A few graduate students? And from the computer science department? Then the trading must be controlled by a program. This algorithmic model is quite impressive!"

However, according to regulations, he could not disclose this information to anyone.

"Sigh, for the sake of these talents, I'll just send them a warning." Impressive as it was, it still wasn't registered, was it? Just as he was about to take action, he realized the Shanghai Stock Exchange had already suspended trading on those accounts.

"They move fast."

That meant it was no longer his concern.

Back to the present. In the laboratory, the five of them sat in a circle, looking at each other.

"We haven't broken the law, have we?" Qiu Yan asked nervously. While he wasn't exactly a saint, he had never done anything illegal in his life!

Yu Tianrui glanced at him and shook his head. "It shouldn't count as such. Our capital is small, and we were stopped in time. This is my fault for not looking into it beforehand. I should have realized that quant trading requires prior registration."

"How is that your fault? We were just inexperienced. Like the warning letter said, we just need to submit the registration according to protocol." Shen Rui waved his hand. Since the exchange only issued a warning, there likely wouldn't be any legal trouble.

Listening to his seniors' analysis, Zhou Yun felt much more relaxed. The law was a red line; no matter how much of a genius he was, he wouldn't dare cross it.

"My senior is right. If we had actually broken the law, we would have received a lawyer's letter, not just a warning."

"So, are we still doing it?" Qiu Yan asked, still feeling a bit shaken.

"Of course we are. We'll complete the paperwork and get everything registered. As long as we comply with the rules, it's fine. If those big quant firms can do it, why can't we? It's all legal; what's there to be afraid of?"

With that settled, the group began uploading their information to their respective trading software, including account details, strategy types, and submission rates.

A few days later, on the final trading day of the week, the registration was approved.

Zhou Yun and his friends breathed a sigh of relief, though while they were relaxing, someone else was not.

At Guotai Junan Securities, several technicians were gathered around a computer screen. It displayed some of the model parameters submitted by Zhou Yun's group. Although the specific details of quant models are trade secrets and cannot be fully disclosed even during audits, certain essential parameters, such as the scale of the model, are required.

The team was currently looking at this data.

"No way? Are they being serious? Can parameters of this scale really achieve these kinds of results?"

"Maybe that's why they only trade gold?"

"That might be part of it, but it shouldn't be this powerful! Even in academic papers, no one would dare to write down these kinds of figures. Who would believe it?"

"True. It's truly absurd. I don't know which genius came up with this, but unfortunately, we have regulations preventing us from disclosing client information. Otherwise, I’d really love to see what kind of person could build a model like this."

"That's not necessarily true. Why don't you report it upward? Who knows, they might actually end up being our colleagues."

After all, rules are rigid, but people can be flexible. Although they couldn't directly investigate the clients' specific information, a phone call was surely allowed.

"You know, you might be right. I'll go talk to the boss. If this algorithm is truly that powerful, we've struck gold!"

"I think you should hurry. I heard we aren't the only firm with these kinds of accounts."

Since Zhou Yun and his friends had opened accounts with different brokerages, a few days after their registration, all five received calls from their respective platforms.

But this time, it wasn't a warning—it was an invitation.

Clearly, all five brokerages had recognized the value of the algorithm.

The group gathered in a circle once again. "So, what do we think?"