Chinese regulators are forcing high-frequency trading (HFT) firms to remove servers co-located inside exchange data centers, a move that directly targets the ultra-low-latency model used by global firms such as Citadel Securities, Jane Street, and Jump Trading.
According to sources familiar with the matter cited by Bloomberg, commodity futures exchanges in Shanghai and Guangzhou have instructed local brokers to relocate their HFT clients’ servers away from exchange facilities. The Shanghai Futures Exchange has reportedly set a deadline of the end of next month for high-speed trading clients.
By placing servers close to an exchange’s matching engine, HFT firms gain a critical speed advantage. In algorithmic trading, even a few milliseconds can determine profitability. Forcing servers out of exchange data centers effectively removes this edge. The measures go further.
China's Double Blow
Sources say futures exchanges are also planning to introduce a fixed two-millisecond latency for connections routed through third-party data centers. While imperceptible to human traders, such a delay could render many speed-dependent strategies unviable. The combination of physical relocation and artificial latency significantly limits remaining avenues for ultra-low-latency trading.
This is the most aggressive step so far in Beijing’s broader effort to “level the playing field” and reinforce market stability. In recent weeks, regulators have also tightened margin trading rules and increased scrutiny of certain ETF transactions involving foreign market makers.
“High-frequency traders may adjust their strategies and are likely to reduce their trading frequency in the short term,” said Shen Meng, a director at Beijing-based investment bank Chanson & Co. He added that firms would “continue to design new solutions,” setting the stage for a prolonged cat-and-mouse dynamic between quantitative funds and regulators.
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Markets Go Down
The news sent a shockwave through Chinese markets. The benchmark CSI 300 Index, which had been up nearly 1% before the report emerged, quickly slid into negative territory.
The move also weighed on metals, as traders reassessed hedging strategies and arbitrage flows between China and overseas markets such as the LME and Comex. Curbs on high-frequency trading cooled speculative momentum after a recent surge in futures activity on Chinese exchanges, prompting copper, zinc and aluminum to retreat in both Shanghai and London.
Some market participants argue the measures could have a longer-term positive effect, as curbing ultra-fast trading may reduce short-term price distortions.
Broader Regulatory Shift
Other major jurisdictions have taken a more measured approach. In Europe, MiFID II permits colocation under transparent and non-discriminatory terms. In North America, venues such as IEX and TSX Alpha apply so-called “speed bumps” that introduce small, uniform delays without banning colocated infrastructure.
China’s approach goes further. Regulators are both removing HFT servers from exchange data centres and imposing fixed latency on connections from third-party facilities — combining physical and technical constraints in a way not seen in other major markets.
For leading global trading firms, the move introduces a new layer of state-mandated friction into a market they have invested heavily to navigate, raising uncertainty over the future role of high-frequency trading in China.
