Under current fluctuation of A-share stock indexes at low point, the market is extremely sensitive to all kinds of information about the cleaning up of off-market margining financing.
The China Securities Regulatory Commission (CSRC) released the Notice on Further Cleaning up and Streamlining Illegal Securities Business Activities (referred to as the Notice) after trading hours on Sept. 17, urging proceeding with the cleaning up of off-market margin financing in an orderly way. Relevant people from securities companies indicate that they will strictly implement the requirements by regulatory authorities on the cleaning up of accounts and the solution will be diversified but not unified.
The Notice further specifies the scope of trust product accounts to be cleaned up: 1. trust product accounts setting sub-accounts and virtual accounts under the mandator of securities investment trust; 2. 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; 3.off-market margin financing whose prioritized mandator enjoys fixed income while non-prioritized mandator directly performs investment orders in the form of investment counselor. The coordination, order and flexibility of the cleaning up are also emphasized; unilateral termination of accounts or “unified” solution should be avoided. Non-transaction trading, replacement of the capital or shares in one account with capital or shares from another through manual reconciliation and utilization of legal means of trading can be adopted. With the precondition of standardizing market development, it can ease the pressure on over-stressed market.
According to statistics by the Notice, as of Sept. 16, totally 3,577 capital accounts have been cleaned up, accounting for 64.30 percent of the accounts suspected of being involved in illegal securities business activities. 84.96 percent of the accounts are cleaned up by cancelling access right to external information system and utilizing legal means of transaction, and 1.01 percent of the accounts are only left with stocks with trading suspension. For other accounts with no assets balance might be dealt with by terminating products, closing account, etc.
Multiple securities companies also indicate that the cleaning up of accounts this time does not simply close accounts or disconnect with external information system, but standardize the accounts with business breaking the laws.
Shenwan Hongyuan Securities Co., Ltd. believes that though the cleaning up of financing still brings the pressure of sell-off, but the actual impact will be limited and the marginal impact on risk preference is also fading. To be specific, (i) umbrella structure still needs to be cleaned up. According to the follow-up on the progress of cleaning up by CSRC, the remained umbrella structure reaches around 160 billion yuan. Pressure on sell-off still exists, but since the process is almost ended, the actual impact will be limited. (ii) CSRC recognizes the legal status of single-structured products, but do not agree with the mode that investment advisers directly place order. There are several ways to avoid direct orders from investment adviser in actual operation. The “non-transaction trading, replacement of the capital or shares in one account with capital or shares from another through manual reconciliation and etc.” proposed in the Notice to transfer assets into the same investor’s account is a way to prevent “unified” solution, thus the actual pressure on sell-off will be limited.
Huatai Securities Co., Ltd. (601688.SH) also believes that the cleaning up of financing targets at realizing manageable and penetrable accounts so as to avoid uncertainties brought by large numbers of invisible accounts. Large proportion of capital has been cleaned up earlier and the relatively small size of remained capital helps to standardize the market and brings limited impact to the market. The communication and coordination between securities companies and trust will be further promoted. Huatai Securities further points out that the cleaning up of accounts will benefit the market’s healthy development in the middle and long run, while the sharp surge and drop triggered by off-market margin financing earlier unfavorably guides investors in investment. The umbrella trust amounts less than 200 billion yuan, according to preliminary prediction. The cleaning up of single-structured trust products worried by the market will mainly be transferred into securities companies’ PB system. A small size of capital involved in non-real-name accounts and structured products is remained after previous cleaning-up. The post effect brought by the cleaning up of accounts has been released days earlier and the market is expected to stabilize gradually.
The securities industry also indicates that according to latest regulatory statement, accounts violating laws and regulations should be cleaned up strictly; the accounts with illegal financing will not be simply closed or disconnected with external information system, but be standardized.
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