I don’t want to overstate the case, but running a high frequency trading operation in Xi Jinping’s China seems like a bad idea.

To be a quant fund is to accept that at some point, you’re likely to be a scapegoat for adverse market developments. Maybe you can make a plausible case that very much contrary to the insinuations of critics, markets are more efficient and more liquid as a direct result of your participation. But nobody’s going to buy it in the immediate aftermath of, say, a flash crash.

But so what, right? Who cares if anyone believes you. Maybe you get some bad press. That’s certainly nothing new. Curious lawmakers and regulatory scrutiny? No worries. You’ve got lobbyists for that. Maybe, in an extreme scenario, there’s enforcement action. But that’s exceedingly unlikely and in any case, you’ll live. And you’ll still be plenty rich.

In China, I’m not sure the risk-reward topography maps quite like that. Especially not now, when Xi Jinping himself is directly involved in a sweeping, whole-of-government effort to prevent additional losses for local equities. The worst case scenario in China is likewise enforcement action, but the definition of “action” could include the complete, overnight dissolution of your operation with no recourse (they don’t call him “The Butcher” for nothin’), or the disappearance of your executives, temporarily or even permanently.

That reality surely isn’t lost on Mainland trading operations, so I’m left to marvel at the brazen temerity of Ningbo Lingjun Investment Management Partnership which, according to the Shenzhen Stock Exchange, ignored multiple “written warnings” issued over the past two months, a period during which the exchange observed a pattern of insolence on the part of the LP’s securities account, culminating in “a large number of sell orders” placed over “a short period of time” earlier this week. According to the exchange, that incident was at least partly responsible for a “rapid drop” in one Chinese benchmark stock index.

Try to appreciate the chutzpah here: A Chinese quant fund whose managers are surely aware of the Party’s obsession with stemming the rout in onshore equities, knowingly, and after receiving multiple warnings, sold more than CNY2.5 billion worth of stocks within 60 seconds on the first day of trading following the week-long holiday. That’s indicative of suicidal audacity, kamikaze greed, flagrant stupidity or some combination of the three. Whatever the case, the fund was banned from trading. All trading. For 48 hours. Which seems lenient under the circumstances, frankly.

The exchange said that in addition to the trading restrictions, “procedures for public censure and disciplinary action” were initiated. I don’t know what that means exactly, but the statement said the exchange is taking its cues from the CSRC, under new management. Supervision, the statement went on, “must be ‘thorny’ and angular.” It’s imperative to “maintain a strict tone and a high-pressure posture” towards violators. The exchange, in an effort to “resolutely” implement the CSRC’s guidelines, will “respond quickly and strike hard” in the event investors’ interests are at risk.

Stocks got the message. They rose. H-shares are now up handily since late last month, with the caveat that they’re still much closer to the 2022 lows than the early 2023 re-opening rally highs.

Mainland shares rose too. The Western financial media was quick to suggest that investors are now more comfortable buying. That’s probably true. “Nobody’s allowed to sell” is a compelling bull case.

It’s also possible — which is to say quite likely — that funds are buying simply as an insurance policy. If The Butcher comes knockin’, they can point to recent purchases while pleading to keep at least one hand.

I’m not joking. In fact, Lingjun (the quant fund) did just that. “We are always bullish and long on the Chinese equity market, and we are always close to full stock positions,” a statement penned under extreme duress read. Lingjun will “resolutely comply” with the enforcement actions and promised to “learn lessons” from this week’s unfortunate developments.

Separately (or not), the CSRC barred major institutional investors from cutting stock exposure during the first and last half hours of each session, Bloomberg reported, citing people familiar with a decree which was “recently delivered to major asset managers” and broker prop desks. In addition, the same reporting said, The Butcher created a new “task force” with a mandate to “monitor short selling and issue warnings to firms that profit from the wagers.”