To strengthen the management of securities brokers’ trading system connectivity, protect the legitimate rights and interests of investors, and maintain the order and fairness of the securities market, the Securities Association of China (SAC) and the Asset Management Association of China (AMAC) (collectively, the “Associations”) jointly issued the Administrative Rules for Securities Brokers’ Trading System Connectivity (Trial) (the “Administrative Rules”) and its ancillary documents on August 28, 2026, effective from the date of issuance.
In the course of securities brokerage service, brokers may allow their clients to place orders through the clients’ own automated trading systems. Trading system connectivity services (services that allow securities brokers, through information system interfaces or other technical means, to connect with their clients’ systems and process client trading instructions) are designed to meet the needs of the clients.
In February 2019, the China Securities Regulatory Commission (CSRC) solicited public comments on the Interim Provisions on the Administration of External Connectivity of Securities Brokers’ Trading Systems, but the consultation draft has not been formally promulgated since then. The framework has now been introduced as self-disciplinary rules rather than CSRC departmental rules. The Administrative Rules are supported by a comprehensive set of ancillary implementation documents, which are operationally designed and have been issued on a trial basis, allowing space for further refinement as market practice develops.
I. Scope of Application
Article 2 of the Administrative Rules clarifies that these rules apply when a securities broker provides trading system connectivity services to its securities brokerage clients. Trading system connectivity refers to the conduct by which a securities broker, through providing technical means such as information system interfaces, interacts with a client’s trading instruction generation system or function (collectively, the external information systems) and receives and processes the client’s trading instructions. A securities broker may only provide trading system connectivity services to its securities brokerage clients. Hence, if multiple entities within the same group receive such services, each service recipient must be a brokerage client of that securities broker.
II. Fundamental Principles
A securities broker must observe the following four fundamental principles when conducting trading system connectivity business:
1. Compliance and Prudence: Conduct trading system connectivity in compliance with the applicable laws and regulations; fully assess its own capabilities and the clients’ trading needs; encourage clients to use the trading terminals provided by the broker under equivalent conditions; prudently provide trading system connectivity services, fairly treat clients using trading system connectivity services and refrain from providing differentiated technology or business resources to any particular client.
Notably, the Administrative Rules require that brokers not to provide differentiated technology or business resources to specific clients. While the interpretation and implementation of this principle may depend on each broker’s judgment, clients should also recognize that market fairness is an essential regulatory principle in China and that any arrangement being challenged as inconsistent with the principle of fairness may directly affect the continued availability of system connectivity services.
2. Risk Control: Identify, monitor and prevent the various risks associated with trading system connectivity, including but not limited to compliance risks, technical risks, operational risks and reputational risks, and ensure the timely and effective management and control of such risks.
3. Full-lifecycle Management: Implement centralized and unified management throughout the lifecycle of the trading system connectivity and establish sound, clear and comprehensive management, covering due diligence, verification testing, pre-connection review, trading surveillance, abnormality monitoring and handling, emergency handling and service termination arrangements.
4. See-through Management: Implement the see-through management of trading system connectivity to ensure substantive identification, ongoing monitoring and the effective management of client identity information, trading accounts, sources of funds and trading activities.
The requirements of full-lifecycle and see-through management mandate that brokers substantively identify, continuously monitor and effectively manage client identities and funding sources. On the one hand, this increases brokers’ responsibilities; on the other, it means that client information will be subject to comprehensive and ongoing review and will also be a focus of regulatory inspections of both brokers and clients.
III. Eligible Clients and Connectivity Requirements
1. Clients eligible for system connectivity
Article 6 of the Administrative Rules provides that securities brokers may provide trading system connectivity services to the following clients with reasonable trading needs:
(i) Securities companies and their subsidiaries, public fund managers and their subsidiaries, futures companies and their asset management subsidiaries, commercial banks and their wealth management subsidiaries, insurance companies and their asset management companies and private fund managers (PFMs);
(ii) Qualified Foreign Investors (QFIs); and
(iii) Other investors recognized by SAC.
PFMs and QFIs are both eligible for trading system connectivity services, reflecting the principle of fair treatment of domestic and foreign investors. The Administrative Rules also prescribe specific requirements for private funds at the manager, fund and system levels. Based on our observations, we cannot exclude the possibility that similar requirements may later be imposed on QFIs.
2. Connectivity requirements for PFMs, private funds and trading systems
With respect to PFMs, the private securities investment funds they manage and the trading information systems connected to securities brokers’ trading systems, the Administrative Rules establish the following requirements:
2.1 Manager-level requirements
(1) Have registered with AMAC and had its first fund product filed with AMAC for at least one year; maintain sound corporate governance, robust internal controls, a good integrity and compliance record; and have personnel, investment management capabilities, information technology and risk control capabilities commensurate with the requirements for trading system connectivity;
(2) Establish a compliance and risk control function and a trading function, or employ independent compliance and risk control personnel and trading personnel; employ at least two technical personnel to ensure compliance, security and the stable operation of system connectivity; and establish sound trading management policies and operating procedures;
(3) Establish and maintain sound information disclosure management policies to ensure the authenticity, accuracy and completeness of disclosed information;
(4) Where program trading is engaged, comply with the program trading reporting obligations in accordance with the laws and regulations; and
(5) Satisfy any other conditions prescribed by the CSRC or AMAC.
2.2 Fund-level requirements
(1) Filed with AMAC and held in custody by a fund custodian;
(2) Where program trading is engaged, comply with the applicable securities and futures program trading regulations; and
(3) Satisfy any other conditions prescribed by the CSRC or AMAC.
2.3 Trading information system-level requirements
(1) Possess the basic functions required by the securities and futures trading venues, undergo adequate verification testing and risk assessment as required, be free of security vulnerabilities or security risks and ensure sustained, safe and stable operation with reference to the Administrative Measures for Information Technology of Securities and Fund Operation Institutions; renew verification testing and risk assessment in the event of material changes to the trading information system;
(2) Possess risk control functions required under the applicable laws, regulations, regulatory rules and self-disciplinary rules governing private securities investment funds, together with pre-trade cash and securities availability checks, order-submission rate controls, abnormal-activity monitoring and error handling, to ensure that trading instructions and activities comply with the applicable securities and futures market requirements;
(3) Maintain comprehensive audit logs and trails appropriate for full-lifecycle management and sufficient for compliance inspections and audits; and
(4) Satisfy any other conditions prescribed by the CSRC or AMAC.
3. File-based connectivity services
File-based connectivity services are an arrangement under which a securities broker’s trading terminal automatically reads the trading instructions recorded by a client in an electronic file or other media, parses those instructions and converts them into executable orders. Securities brokers are required to manage file-based connectivity by reference to the full set of requirements applicable to trading system connectivity.
A securities broker may provide file-based connectivity services to the following clients with reasonable trading needs:
(1) Clients specified in paragraphs (i) and (ii) above;
(2) Other financial institutions such as trust companies duly approved by the financial regulatory authorities; and
(3) Other PFMs registered with AMAC that do not satisfy the connectivity requirements summarized above.
IV. Full-lifecycle Management Requirements for Securities Brokers
The Administrative Rules require securities brokers to implement management throughout the lifecycle of trading system connectivity business including due diligence, verification testing, pre-connection review, execution of connectivity agreements, trading surveillance, abnormality handling, ongoing monitoring, emergency handling and termination arrangements. Key requirements include:
1. Pre-connection review: Brokers shall conduct due diligence, comprehensively verify information on their clients, their products and their external information systems, and produce due diligence reports. Brokers shall establish a test environment matching the production environment in terms of functionality, conduct verification testing of the external information systems to be connected, perform risk assessments and confirm that the external information systems can operate safely and stably. Brokers shall review the due diligence reports, the connectivity agreement drafts and the external information system testing and assessment results, and issue clear review opinions. Brokers shall sign agreements with clients specifying the rights, obligations and responsibilities of both parties.
2. In-process management: Brokers shall establish and maintain robust monitoring systems or functions for trading system connectivity and incorporate them into the securities brokerage business’ abnormal trading monitoring framework, with monitoring requirements no less stringent than those for securities brokerage abnormal trading monitoring. They shall implement see-through management of client identities, trading accounts, funding sources and trading behavior, ensuring substantive identification, ongoing monitoring and effective management. Brokers shall establish abnormality handling mechanisms for trading system connectivity, specifying the trigger events for restricting, suspending or terminating connectivity services. Brokers shall establish and maintain emergency handling plans and mechanisms for abnormal securities trading, information system failure and loss of trading system connectivity capabilities as well as conduct regular drills.
3. Post-event handling: Upon the occurrence of specific circumstances, the broker shall immediately investigate and, as appropriate, restrict or suspend connectivity. If a client violates requirements, the broker shall report to SAC promptly, and as required, report to the CSRC local office and securities trading venue. The broker shall terminate the connectivity service if the client violates the applicable laws or regulations, engages in abnormal trading that materially disrupts the market order, presents a material risk or no longer satisfies the connectivity requirements.
V. Compliance Obligations of Clients and Technical Service Vendors
Clients and technical service vendors participating in trading system connectivity must comply with the corresponding obligations: cooperate with brokers’ due diligence and verification, ensure the secure deployment of external information systems, maintain logs and handle abnormalities, regulate their trading activities and cooperate with regulatory inspections. In addition, PFMs are required to be subject to system spot inspections, assist in identifying risks associated with unauthorized over the counter (OTC) margin financing, strengthen internal trading and system controls and submit data relating to trading system connectivity as required by the regulators and self-disciplinary organizations. Technical service vendors must cooperate with due diligence, testing and fault tracing, strictly control software version changes and coordinate emergency responses when risks occur. They must not deploy trading-related software using shared computing resources on public cloud platforms or illegally provide trading connectivity capabilities to third parties outside the broker’s management framework.
The Administrative Rules explicitly provide that clients’ information systems shall not be deployed in the brokers’ data centers, to avoid undue impact on the broker’s trading information system, and a client must not connect to the broker through a local area network (LAN) for trading. This may have a significant impact on existing models in which brokers provide servers, data centers and network resources for server hosting or rack hosting (including lease-back arrangements). Such arrangements may gradually shift toward clients procuring their own servers, contracting with third-party data centers to deploy hosted servers or equipment, and then connecting to brokers’ trading systems through external networks.
VI. Prohibited Conduct
The Administrative Rules also set out prohibitions applicable to securities brokers and clients in the following three respects:
1. Prohibited conduct by securities brokers
(1) Submit to securities trading venues any trading instructions generated by external information systems that have not been reviewed and approved by the broker, and they shall ensure that trading orders from external information systems comply with the trading rules of the securities trading venues;
(2) Delegate the management responsibilities for their trading information systems to clients;
(3) Circumvent the management requirements for trading system connectivity by purchasing information systems for specific clients or through other means or technical methods;
(4) Provide any facilitation or services for OTC margin financing, illegal lending of accounts, illegal securities brokerage activities or other such conduct;
(5) Adversely affect the trading systems of securities trading venues or create unfair trading conditions by modifying the parameters of the broker’s own trading system or by other means;
(6) Engage in any other conduct prohibited by the laws or regulations, the CSRC or securities trading venues.
Particular attention should be paid to prohibitions against circumventing trading system connectivity requirements by purchasing information systems for particular clients or through other methods or technical means. Therefore, certain existing market practices that do not comply with the Administrative Rules will need to be rectified accordingly.
2. Clients to whom securities brokers shall not provide connectivity services
(1) Clients that have engaged in OTC margin financing, illegal business operations, illegal fundraising or other violations of the laws or regulations in the past three years, or whose legal representatives or de facto controllers have engaged in such violations in the past three years;
(2) Clients that illegally transfer or lend external information systems to third parties or provide trading connectivity access to third parties;
(3) Clients whose violation of the laws or regulations relating to trading system connectivity has been recorded in the integrity files of the securities and futures market;
(4) Other clients prohibited by the laws or regulations, the CSRC, securities trading venues, SAC or AMAC.
It should be noted that if a client violates the provisions relating to trading system connectivity and program trading, for example by engaging in abnormal program trading behavior, the consequences may not be limited to self-disciplinary measures or disciplinary sanctions imposed by the exchanges but may also include the recording of the misconduct in the integrity files of the securities and futures market. Under the Measures for the Supervision and Administration of Integrity in the Securities and Futures Markets, if a violation is recorded in the integrity files of the securities and futures market, it may have a material adverse impact on the institution’s applications for administrative approvals, registration and filing, regulatory inspections, securities account opening and credit-based securities business, and may also render the institution ineligible to receive trading system connectivity services from brokers.
3. Prohibited conduct by clients
Article 25 of the Administrative Rules provides that clients of securities brokers must not use trading system connectivity to conduct unauthorized OTC margin financing or other unlicensed securities business, unlawfully solicit clients or process third-party trading instructions, or unlawfully transfer or lend their investment and trading systems or provide system access to third parties. If a securities broker identifies any such conduct, it must immediately terminate the client’s trading system connectivity and report the matter to the CSRC and SAC. These prohibitions are consistent with Article 19.2 of the CSRC’s Administrative Provisions on Program Trading in the Securities Market (Trial). Importantly, if a client is found to have engaged in unlicensed securities business in violation of this provision, the responsible individuals may be exposed to criminal liability. A recent first-instance judgment in the Shanghai Changning District People’s Court attracted wide attention: a quant PFM with more than RMB 10 billion in assets under management made the underlying stock positions and certain trading permissions in the securities accounts of its funds available to external trading teams through a sub-account trading system for intraday round-trip trading, and collected fees in return. The PFM was found to have provided, without authorization, securities trading services with securities-lending characteristics, and the responsible individuals were sentenced to imprisonment. Clients are advised to take this enforcement into account when assessing their compliance risks and avoid any arrangement that could be characterized as unlicensed securities business.
VII. Ongoing Management Requirements
1. Filing and access
The Administrative Rules establish filing and access mechanisms for securities brokers to conduct trading system connectivity business. Before engaging in such business for the first time, securities brokers shall file with SAC and submit the prescribed filing materials, including a filing application, a statement of compliance with access conditions, the implementation plan for trading system connectivity, a compliance opinion, a risk management opinion, an undertaking letter and other materials as required.
2. Ongoing reporting obligations
Securities brokers that have completed the filing for trading system connectivity shall undertake the following reporting obligations:
(1) Quarterly reports: Within ten working days after the end of each quarter, submit to SAC a report on the trading system connectivity services provided to PFMs.
(2) Annual reports: By April 30 of each year, report on the trading system connectivity activities of the previous year, including the number of clients with trading system connectivity, the assets and trading volumes, the compliance and risk management of connectivity services and other information on the implementation of the Administrative Rules.
(3) Ad hoc reports: Pursuant to Article 28 of the Administrative Rules, securities brokers shall also submit ad hoc reports and other information as required by the CSRC and SAC.
3. Self-disciplinary mechanisms
Under Article 29 of the Administrative Rules, the Associations conduct self-disciplinary management of the trading system connectivity activities of securities brokers and PFMs. SAC may, as needed for self-disciplinary management, conduct self-disciplinary inspections of securities brokers’ trading system connectivity business, and securities brokers and PFMs shall cooperate. AMAC may, as needed for self-disciplinary management, conduct practice inspections of PFMs’ trading system connectivity activities, and securities brokers and PFMs shall cooperate.
4. Suspension of new connectivity services and revocation of the filing
If a securities broker experiences material changes in its operational or risk control capabilities resulting in the loss of its capacity to conduct connectivity business, materially violates the Administrative Rules and disrupts market order, submits false, incomplete, or misleading filing materials or reported data, or triggers other circumstances prescribed by the laws, regulations, or self-disciplinary rules, SAC may require the broker to suspend new connectivity services for some or all clients, or revoke its filing.
A securities broker whose filing has been revoked shall complete the orderly wind-down of its existing connectivity clients within two years and report the completion of the wind-down to SAC. Existing models, under which securities brokers provide or host infrastructure, may continue during a transitional period, but brokers and clients will need to reassess server ownership, data-center deployment, network connectivity and system operation and maintenance arrangements during the transition and gradually migrate to structures that comply with the new requirements. In the short term, domestic and foreign clients are not expected to change their trading models immediately as a result of the Administrative Rules, but they should monitor any subsequent migration and system modification requirements raised by their brokers.
Our Observations
The Administrative Rules form part of the self-disciplinary framework implementing the CSRC’s Administrative Provisions on Program Trading in the Securities Market (Trial). They repeal the Standards for the Assessment and Certification of Securities Companies’ Externally Connected Information Systems issued by SAC in 2015 and upgrade the previous system evaluation and certification model to a full-lifecycle and see-through management system. The Administrative Rules systematically address eligible brokers, the scope of eligible clients, system requirements, risk controls, prohibited conduct and ongoing reporting obligations for trading system connectivity services.
In particular, the principle that securities brokers shall treat system-accessing clients fairly and shall not provide differentiated technical or business resources to clients, echoing the requirements of the previously issued Guidelines for the Administration of Trading Gateways (Trial) and the Notice on Strengthening the Administration of Participant Trading Business Units issued by the stock exchanges, which require securities brokers to allocate trading gateways fairly and strictly prohibit unfair conveniences for any single investor.
The Administrative Rules also establish, for the first time, clear connectivity standards for PFMs and private funds and set out connectivity conditions and management requirements at the PFM, private fund product and trading information system levels. The Administrative Rules also preserve file-based connectivity services for certain PFMs that do not meet the conditions for direct connectivity and require securities brokers to manage such services by reference to the requirements applicable to trading system connectivity.
For quant managers, the requirements of the Administrative Rules may extend competition in quant trading beyond trading strategies to infrastructure capabilities. The Administrative Rules do not require market data to be transmitted through a wide area network (WAN). Accordingly, for low-latency strategies, the location of third-party data centers, their physical distance from brokers’ trading systems, the means of obtaining and forwarding market data, and network and rack resources will remain important. As the existing models are gradually rectified during the transition period, the market will generally shift from securities brokers providing or hosting infrastructure to clients self-deploying; clients’ self-hosted servers, core third-party data center resources, low-latency market data, networks and operation and maintenance capabilities may become new dimensions of competition among quant managers. In light of the previously implemented requirements such as trading-latency increases and data center restructuring, the impact on mainstream quant strategies is expected to be generally limited in the short term. However, in the medium to long term, the importance of infrastructure capabilities may increase significantly.
We recommend that securities brokers, clients using system connectivity or file-based services (especially for PFMs and QFIs), and technical service vendors promptly review and assess their internal policies, trading information systems and business procedures against the Administrative Rules. They should complete rectifications in a timely manner and ensure the smooth and compliant operation of their business.
