Regulators in Asia have tightened the screws on trades popular among hedge funds as stocks slumped ¡ª an attempt to stabilize markets that some worry may end up stifling key strategies.

Thailand¡¯s plan to increase scrutiny on high-frequency trades ¡ª in effect from Monday ¡ª follows steps from China, where programmed trading will soon be subject to real-time monitoring. While authorities expect the moves to enhance transparency, the growing control over certain trades has raised concern that liquidity may tighten and make those markets overall less attractive.

¡°The current trend of regulators tightening the regulation of high frequency trading is somewhat understandable but also worrying,¡± said Gary Dugan, chief executive officer of the Global CIO Office. ¡°The activity of the HFT funds also brings liquidity to the markets ¡ª better liquidity should lead to the improvement in the efficient pricing of assets.¡±

The controversial nature of such restrictions is on full display in South Korea, where a short-selling ban hurt its attempts to win an upgrade from MSCI Inc. These developments show the difficulties policymakers have in keeping up with increasingly sophisticated trading strategies and their impact on financial markets ¡ª a challenge that¡¯s only set to grow with the adoption of artificial intelligence.

The restrictions, typically introduced when stock markets were under pressure, have managed to stop the bleeding but their longer-term impact is under debate given the growth of computer-aided trading.

Quantitative strategies are based off data science and systematic techniques, with some using big data to time markets, follow trends or execute arbitrage trades.

China¡¯s clampdown on quant trading came in February when the stock market was at multiyear lows. With the added support from purchases by state funds, shares staged a rebound but have started to fall again since late May.

Thailand¡¯s SET Index has fallen about 8% this year, turning it into one of the region¡¯s worst country benchmarks. The stock exchange said it will require high-frequency traders to register before they can place orders. The measures are part of a package of rules to restore calm amid concern over the impact of illegal short selling, program trading and corporate scandals.

¡°Policymakers in these markets might view volatility as the primary culprit for underperformance,¡± said Hebe Chen, an analyst at IG Markets Ltd. ¡°In smaller markets like Malaysia, where the combination of performance and volatility is more similar to China and Korea, the odds of creating their own safety net can¡¯t be ruled out.¡±

Chen added that countries that are more closely connected to global investors, such as Japan and Singapore, are unlikely to apply such restrictions as they seek to align with the ¡°universal rules of the game.¡±

As restrictions look...