Recently, the A-share market experienced unexpected fluctuations after a period of positive momentum and favorable sentimentMajor indices, which had been climbing steadily, suddenly dropped sharplyThis abrupt change was accompanied by circulating rumors concerning the potential revival of previously suspended quantitative trading strategiesThe significant question looms: Are these rumors unfounded? Inquiries made by Chinese brokerage reporters have led them to confirm that there are no current indications or notifications regarding such strategies being resumedConsequently, the existing policy arrangements are expected to remain in force for the foreseeable future.

Market dynamics displayed a noticeable shift, with changes in sector focus and underlying trends

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Micro-cap stocks, which had been on the rise during the morning, retreated somewhat, while large-cap stocks and dividend-paying shares began to show re-energized performanceIn light of recent trends, the micro-cap sector's performance has been surprisingly robustWhat is the source of support driving these market movements, and how will the trajectory of this uptick evolve?

Rumors swept across the trading floor earlier today, suggesting a resurgence in trading activityAccording to the Tonghuashun iFinD data, by midday, trading volumes were nearing a staggering 900 billion yuan, with nearly 70 stocks reaching their daily price limitsMarket sentiment was initially buoyantHowever, a momentary but significant sell-off occurred, compelling foreign investors to reduce their positions sharply.

Amidst the flurry of trading activities, startling news about the regulatory environment surrounding DMA (Direct Market Access) emerged

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The preliminary insights indicate strict operational constraints restricting proprietary trading fundsIn particular, the policy aims to gradually exit raised funds following contract expirations while enforcing a leverage cap of 1:1.

Moreover, significant changes within the lending market are on the horizon as new regulations dictate that margin trading from the other side will shift from real-time adjustments to next-day availability, thereby impeding lending efficiencyThis regulatory transition is anticipated to take effect starting March 18.

The narrative surrounding quantitative trading has been fraught with controversy since August 28 of last year when widespread reports surfaced about certain brokerage firms suspending T+0 algorithmic trading

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Follow-up investigations have confirmed the tumultuous regulatory landscape affecting this segment, especially following marked fluctuations earlier this year.

In this tumultuous arena, the micro-cap stocks initially emerged as strong contenders for market rebound, as evidenced by the Wind micro-cap index surging for eight consecutive trading days to nearly 90,000 pointsHowever, the aforementioned rumors triggered a significant reverse in that positive trend.

Simultaneously, the large-cap stocks, particularly those associated with Chinese state-owned enterprises, began to exhibit remarkable resilience today, clearly outperforming the broader market.

The overarching question persists: Is this a definitive turning point for market dynamics, indicating a cessation in the micro-cap stock rally? The updated DMA regulations effective from December 2023 will significantly restrict the growth of quantitative DMA business and off-market individual borrowing, leading to diminished liquidity in small-cap assets as well as yield inversions in market capitalization.

As expectations shift, the implications of such market regulations appear to intensify

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A growing sell-off is affecting small-cap stocks, exacerbated by quantitative fund redemptionsNotably, over the past half-year, mechanisms that previously benefitted from low volatility have exhibited significant reversals, showing diminishing returns.

Research conducted by Guohai Securities indicates that these policies will constrain long-term market logic for small and micro-cap stocksThe rapidly correcting risk characteristics that have been misaligned with stable "fixed income plus" models could spark a re-trend returning larger-cap value stocks to prominence.

On the brighter side, several positive economic forecasts are still being realized

One of the significant focal points includes the establishment of a unified national market—a vital step advocated by officials emphasizing the need for fair competition regulations to underpin the new market infrastructure.

Additionally, the anticipated stimulus for the real estate sector, following directives from the central bank and financial regulators geared towards bolstering the rental market, gives rise to expectations for potential fund establishment aimed at purchasing existing properties for public rental use.

Lastly, signs of increased activity in the government bond market indicate fluctuating investor sentiments