☄️Quant Hedge Funds Trapped in Short Squeeze After China Glitch
⏺Some firms suffered heavy losses because they shorted index futures for their so-called Direct Market Access strategies, said the people. Some saw their losses exacerbated by a Shanghai Stock Exchange glitch that left them unable to sell holdings to meet margin requirements.
⏺The losses come as many quants are still recovering from record drawdowns suffered during China’s stock market meltdown in February, when their favored small-cap stocks crashed, prompting regulators to push for the DMA products to be phased out. Now they have been caught wrongfooted again after China’s latest economic stimulus measures sparked the biggest weekly equity rally since 2008.
⏺Still, Friday’s drawdowns in the DMA products were smaller than the losses seen in February, and any forced liquidations should be rare, said the people. Some brokerages have agreed to extend deadlines for the quant clients to add margins for bets on index futures
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⏺Some firms suffered heavy losses because they shorted index futures for their so-called Direct Market Access strategies, said the people. Some saw their losses exacerbated by a Shanghai Stock Exchange glitch that left them unable to sell holdings to meet margin requirements.
⏺The losses come as many quants are still recovering from record drawdowns suffered during China’s stock market meltdown in February, when their favored small-cap stocks crashed, prompting regulators to push for the DMA products to be phased out. Now they have been caught wrongfooted again after China’s latest economic stimulus measures sparked the biggest weekly equity rally since 2008.
⏺Still, Friday’s drawdowns in the DMA products were smaller than the losses seen in February, and any forced liquidations should be rare, said the people. Some brokerages have agreed to extend deadlines for the quant clients to add margins for bets on index futures
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