As of Sept.16 since certain opinions on further cleaning up and streamlining illegal securities business activities was released by China Securities Regulatory Commission (CSRC), 64 percent of the suspected accounts have been cleaned up. For the next step, three kinds of trust product accounts will still be cleaned up strictly. During the process of cleaning up, securities companies should not unilaterally terminate contracts and deal with it in a simple way, but should resort to multiple legalized means of transaction in accordance with laws and regulations through consultation with clients.
The CSRC distributed the Notice on Further Cleaning up and Streamlining Illegal Securities Business Activities (referred to as the Notice) to local regulatory bureaus to make above-mentioned issues explicit. According to the Notice, securities companies can deal with illegal capital accounts by transferring the assets of illegal accounts to the same investor’s account through non-transaction transfer, manual reconciliation and etc. or by cancelling external access to information system and utilizing legalized means of transaction.
Statistics from CSRC shows that after the launch of the Notice, relevant cleaning up and streamlining work is proceeding in an orderly way. As of Sept.16, totally 3,577 accounts are cleaned up, accounting for 64.30 percent of the accounts suspected of being involved in illegal securities business activities.
For accounts completed cleaning-up, 84.96 percent of the accounts are cleaned up by cancelling external access to information system and utilizing legal means of transaction, and only 1.01 percent of the accounts left with stocks with trading suspension. For other accounts with no assets balance might be dealt with by terminating products, closing account, etc.
Based on this, the Notice further specifies two key requirements on cleaning up and streamlining off-market margin financing in the next stage.
Firstly, it specifies the scope of trust product accounts to be cleaned up and requires securities companies carefully identifying and confirming accounts suspected of being involved in off-market margin financing.
The scope of trust product accounts to be cleaned up covers trust product accounts setting sub-accounts and virtual accounts under the mandator of securities investment trust; trust product accounts whose mandators (or affiliated party) of different sub-umbrella trusts independently implement investment decisions and share the same trust product securities account; off-market margin financing whose prioritized mandator enjoys fixed income while non-prioritized mandator directly performs investment orders in the form of investment counselor, etc.
Secondly, the Notice further clarifies ways of clearing up. Instead of unilaterally terminating the contracts or simply brokerages, they should discuss with their clients and adopt legal practices.
Specifically, the assets involved illegal accounts can be transferred to the account of the same investor by non-transaction transfer or replacing the capital or shares in one account with capital or shares from another. Accounts can also be cleaned by cancelling external excess to the information system and using legal trading.
Public data shows that replacing the capital or shares in one account with capital or shares from another is a way of manual reconciliation, but not trade transfer.
Industry insiders analyze that during previous cleaning-up process, most accounts have been cleaned up by ways of cancelling external excess to the information system and using legal trading. These accounts have now left no balances, or terminated launching products or been closed.
The Notice further specifies the scope of accounts involved in trust products that will be cleaned up. Securities companies can be flexible in dealing with problems concerning the compliance of transfer and access right, rather than unilaterally terminating the contracts to clean up all accounts.
The Notice also requires that securities regulators should urge securities companies to discuss and coordinate with their clients to clean up accounts as planned, and these securities companies with conforming accounts should continue to provide satisfying services to clients.
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