Program trading

[2] There are essentially two reasons to use program trading, either because of the desire to trade many stocks simultaneously (for example, when a mutual fund receives an influx of money it will use that money to increase its holdings in the multiple stocks which the fund is based on), or alternatively to arbitrage temporary price discrepancies between related financial instruments, such as between an index and its constituent parts.

In addition, the proliferation of hedge funds with all their sophisticated trading strategies have helped drive program-trading volume.

[8] In the United States, program trading has been subject to regulation and oversight in response to concerns about its impact on market stability and volatility.

[10] The China Securities Regulatory Commission (CSRC) has introduced a monitoring and reporting mechanism for program trading in Chinese stock markets in 2023.

Stock exchanges in Shanghai, Shenzhen, and Beijing will implement rules on program trading and establish reporting systems to monitor unusual activities.