Research On The Influence Of Transaction Limit Measures On VPIN Prediction In China Futures Market

As a frontier hotspot of Quant-trading,the Market Microstructure Theory and Highfrequency Trading have received great attention in the financial industry and academia in recent years.The core of the market microstructure theory is that the arrival of trading instructions contains the information of the next price change.Trading in the market microstructure is the core of high-frequency trading.High-frequency trading provides liquidity to the market,but when informed traders are instructed,the flow of instructions will reverse the selection of high-frequency traders.These order flows are considered to be toxic.Relying on this high-frequency indicator VPIN can be used to measure the probability of informed transactions and predict the short-term market liquidity and volatility.Since the end of 2015,China's futures market has started a hot market with “black series” as its starting point,and its liquidity has greatly increased.In view of this,on June 1,2016,the Shanghai Futures Exchange revised the “Measures for the Risk Control of the Shanghai Futures Exchange” to introduce a transaction limits system,which clearly defined the transaction quota,which means that the member or customer specified by the exchange is limited in certain contracts and the maximum number of positions to be opened within a certain period of time.After the exchange has comprehensively judged the market transactions,it can implement a trading limits system for different listed products,contracts,and for some or all members and specific customers.At present,there is no study on the effect of quotas on futures trading on the VPIN forecasting ability of the instruction flow toxicity index,and there is no study on the effect of futures trading limits system implementation.Therefore,the research in this paper has certain theoretical significance for the performance of the latest information model in the market microstructure theory under the impact of exogenous events,and it has a certain practical significance to the investment strategy for investors in the Chinese futures market under the new system and the implementation effect of the limits system for supervisory.This article selects 1-minute high-frequency trading data of the deformed steel bar main contract(including RB1701,RB1705)of the Shanghai Futures Exchange in October,November and December 2016.The VPIN model program is written in Python and Matlab software is used.To measure the order flow toxicity(VPIN)before and after measuring the transaction limit measures imposed by the Shanghai Futures Exchange,analyze the impact of the transaction limit measures on the market,and analyze the changes in the market liquidity and volatility forecasting ability of the VPIN before and after the transaction limit measures are implemented.Analyze the effect of trade limit measures.The research and analysis show that:(1)The implementation of the trading limit measure in the futures market has caused a certain degree of impact on the market liquidity and volatility,which has a significant effect,resulting in a drop in the level of liquidity in the market and an increase in the level of volatility;(2)The applicability of the instruction flow toxicity index VPIN in the futures market without market makers in China is verified;(3)VPIN still maintains a certain ability to predict futures market liquidity and volatility under the impact of transaction limit measures,but the prediction capability has dropped significantly after the impact.