Off-market margin financing resurges

Since last year, the regulators have taken actions to clean up off-market margin financing. The China Securities Regulatory Commission (CSRC) has previously prohibited securities companies from providing any convenience or service for the securities margin trading between their customers and other parties or between customers by selling umbrella trust on commission basis, P2P platform, self-developed margin trading services and systems and etc. Online financing has been officially prohibited.

The Securities Times learnt that off-market margin financing has resurged. Some well-known off-market margin financing firms previously cleaned up are suspected of coming out again in disguised forms, and others enhanced their credit by obtaining private fund license.

The Securities Times learnt that the threshold of margin of several online off-market margin financing companies surveyed can be as low as 10,000 yuan, and most of them provide leverage of four times and even five times .

Enhance credit by obtaining private fund license

Requiring clients to register as members online, reaching agreements on the threshold of margin, leverage, interest rate and trading with independent securities account provided by the margin financing company, this is the specific operating mode adopted by margin financing companies that are still active. For different margin financing companies, there might only be some slight differences on the threshold of margin, interest rate and risk-control line.

The journalist also learnt that most off-market margin financing companies require individual investors to transfer their money to the bank accounts provided by them. The trading accounts are also provided by the company, that is to say, only securities accounts provided by the company could be used. Customer service staffs of various margin financing companies claimed that securities companies they cooperate with are large ones in the industry, so that the security of the clients’ money can be guaranteed.

Restart banned business in disguised form

The journalist from the Securities Times contacted a margin financing company which used to be a leading player in the industry. After suspension of the off-market margin financing business, the company has continued to be engaged in the off-market margin financing business in the name of “investment company”. It has raised the threshold of margin financing: the margin should be no less than 100,000 yuan, and the leverage is up to 1:4. “With margin of no less than 100,000 yuan, client can finance 400,000 yuan, with monthly rate of 1.25 percent,” customer service staff of the company told the journalist. It is learnt that monthly rate of off-market margin financing usually ranges from 1.5 percent to 2 percent.

Margin financing contract of an off-market margin financing company says: when the loss of the aggregate of the market value of shares and balance of the securities account exceeds or equals to 40 percent of the margin of the Party B (namely the client), it triggers the warning line; the Party B should reduce the position on time or call margin to maintain the margin above 80 percent of the original amount, to ensure the total of market value of shares and balance in the account to remain below the risk control standard. When the loss of the aggregate of market value of shares and the balance of the securities account exceeds or equals to 50 percent of the Party B’s margin, it hits the open line; providing that the Party B cannot supplement sufficient margin on time, the Party A (namely the margin financing company) is entitled to settle the securities account. “The Party A can change the transaction password without prior consent from the Party B, and mandatorily liquidate the account by any means at any time. The losses shall be borne by party B.”

(APD)