Thursday, November 26, 2015

Securities clearing interest swaps financing leverage of up to 5 times involved

Channels for brokerages to provide investors with a maximum of 5 times leverage is blocked!

Securities and Futures Commission to the brokerage issued a notice recently asking brokers not through over-the-counter derivatives business to customer funds are melting, the Shanghai and Shenzhen stock exchanges trading listed stocks and stock new sanban.

The industry, issued by the Securities and Futures Commission a total of five bans, largely focused on equity financing the interest swaps will only sell yesterday, not buying, involving about hundreds of billions Yuan.

Regulators ' five prohibitions include: no new such business; business not fully settle, shall not be renewed; for contract customers credit has not been fully used, you may not use the remaining credit lines to buy stock; may use credit lines to buy stock to sell the stock recovery; not buying by replacing the standard form.

Equity financing business official said several brokerages, regulators may have three purposes: one is to rectify such OTC derivatives business; the second is cleaning up such highly leveraged operations; third, leveraged within the field supervision. early 30 year cycle of ed rate hike have been

Brokerage who declined to be named said, equity financing business as a broker of OTC business, has the obvious non-standard features, so the business is currently unlikely to finance field specifications, and leverage significantly higher financing.

According to the latest data released by the securities industry association, October OTC equity derivatives securities company released an initial notional principal 108.278 billion which return swaps added 22.25 billion yuan, compared to about 21%, the options business by 86.029 billion yuan, compared to about 79%. At the end of October, pending an initial notional principal of 279.21 billion yuan, about 12% on a monthly basis, in which the initial notional principal of swaps outstanding 121.729 billion yuan, compared to about 44% and options on behalf of the business pending the initial principal amount of 157.481 billion yuan, compared to about 56%.

The trade, the CSRC cleaning is intended primarily for 121.729 billion worth of equity swaps. As the scale of the money in stock market abnormal fluctuation of the former field of external funding is much smaller, only fraction of current financing within the field, so the cleanup will be very limited impact on the market.

By its very nature, interest swaps are also securities provide investors with leveraged refers customers to submit certain deposit, securities through accounts, instead of stock investors agreed limit, floating profit and deficit resulting from investors, the interest of investors need to pay the agreed amount, interest rate agreed jointly by the investors and brokers.

Due to the business of non-standardized OTC business, so the Conventions vary between brokers and investors. In General, the deposit 20%~50% per cent, the interest rate is about 8% investor ~3000 million threshold for net assets of 20 million Yuan. Deposit cash, may also be government bonds, corporate bonds or stocks. Cash conversion rate of 100%, conversion rate 90%~95% bonds, corporate bonds for 70%~80%, stock conversion rate is 20%~60%.

Trade, equity swaps business leverage of up to 5 times, usually between two or three times, leverage ratio far above the floor financing 1 time. Promote slow cow, in the regulators emphasized the inverse cycle adjustment lever of the moment, sooner or later, this type of business is prohibited.