Investor Protection Promotion Issue 11 | Off exchange funding poses multiple risks, please stay away from the temptation of leverage
Safeguarding the rights and interests of investors and safeguarding their confidence are important prerequisites for promoting the sustained and healthy development of the capital market. In order to help build a good capital market order, safeguard the legitimate rights and interests of investors, and shoulder the responsibilities and obligations of listed companies, Guanzhong Ecology has launched a "Investor Protection" publicity column this year, with one issue per month, to spread official voices, convey professional knowledge, help investors improve their investment knowledge level, enhance their ability to distinguish the authenticity of information, and stay away from false advertising, illegal stock recommendations, malicious speculation and other behaviors.
Publicity column for "Guanzhong Ecological Investor Protection"
Issue 11: Off exchange funding poses many risks, please stay away from the temptation of leverage
Off exchange capital allocation is a type of illegal securities activity that operates outside of regulation, with high leverage amplifying market volatility and disrupting the normal order of the capital market. This issue's "Guanzhong Ecological Investor Protection" promotional column will use real cases to help investors raise awareness of prevention and protect their own property safety.
1、 Basic case
In October 2020, Long asked Wen on WeChat if he was still doing off-site funding and received a positive response. Subsequently, the two parties agreed through WeChat chat and other means that Wen would provide funding services for Long. The specific operation is as follows: Long pays a margin to Wen, who then provides Long with a 10 times leverage allocation and an APP operation account for stock trading. Long needs to pay the corresponding fees.
From October 2020 to November 2021, Long transferred a total of 1066800 yuan to Wen, and Wen transferred 367480 yuan back to Long.
In January 2022, Wenmou will transfer 150000 yuan to Longmou through Alipay and WeChat, and Longmou will issue a Letter of Commitment for One Time Termination to Wenmou, stating that after receiving the returned fund of 150000 yuan, he will no longer make any other charges to Wenmou in any form or for any reason; And promise that this will be a one-time termination treatment. If the above commitment is violated, we are willing to bear a high penalty for breach of contract.
However, soon after, Long filed a lawsuit with the court, demanding that Wen return the remaining funds of 549320 yuan.
2、 Court ruling
The People's Court of Heshan District, Yiyang City, after trial, believes that the case is a dispute over an off-site funding contract.
According to Article 58 and Article 120 of the Securities Law of the People's Republic of China, except for securities companies that have been approved and licensed in accordance with the law, no unit or individual shall engage in securities underwriting, securities sponsorship, securities brokerage, and securities margin trading. According to Article 153 of the Civil Code of the People's Republic of China, "Civil legal acts that violate mandatory provisions of laws and administrative regulations are invalid. However, except where such mandatory provisions do not render the civil legal act invalid, civil legal acts that violate public order and good customs are invalid
In this case, the off-site funding behavior between Long and Wen violated the mandatory provisions of laws and administrative regulations and should be considered invalid; Long needs to transfer a total of 1066800 yuan to Wen based on off exchange funding, and withdraw 367480 yuan during the stock operation. The remaining 699320 yuan of funds that have not been recovered includes the stock loss portion and the funding fees charged by Wen. Due to the lack of evidence provided by both parties to prove the amount of funding provided by Wen and the time when Long used the funding, it is impossible to calculate the amount of funding fees that belong to the unrecovered amount mentioned by Long. However, the 150000 yuan refunded by Wen to Long in the "Commitment Letter" issued by Long in January 2022 is the conclusion reached by both parties through calculation and negotiation, and should be the return of funding fees. It can be confirmed that the remaining 549320 yuan in the unrecovered funds should be the loss of Long's investment.
The reason for Long's loss in this case is due to the high leverage ratio provided by Long through illegal off exchange capital allocation, in pursuit of high returns. The selection and trading of the loss stocks were decided and operated by Long himself. In addition, Long had about 5 years of stock trading experience before participating in off exchange capital allocation, so he should understand that there is a risk of loss in stock trading. Long did not provide evidence to prove that the 549320 yuan was caused by Wen's control of the account by changing passwords or other means, which prevented Long from closing the position and stopping losses in a timely manner. Also, because the off exchange capital allocation in this case was initiated by Long's proactive inquiry to Wen, the court did not support Long's request for Wen to return (compensate) 549320 yuan.
In summary, the court ruled in accordance with the law to reject Long's lawsuit request.
3、 Science popularization time
1. What is off-site funding?
Off exchange fund allocation mainly refers to the financing party (stock trader) providing a certain amount of margin to the designated securities trading account of the fund allocation party, and the fund allocation party providing the fund allocation into the account based on the margin and a certain leverage ratio; The funding party provides account passwords to the financing party, and the financing party operates securities trading; The funding provider charges management fees or interest at a fixed rate.
2. Is off-site funding behavior effective?
The business activities carried out by off exchange fund allocation companies are essentially financing activities that can only be carried out by securities companies in accordance with the law. They not only avoid regulatory restrictions on funding sources, investment targets, leverage ratios, and other aspects of margin trading, but also exacerbate irrational market fluctuations. Except for securities companies that have obtained the qualification for margin trading and short selling in accordance with the law and engage in margin trading and short selling business with customers, any off exchange funding contracts between any other unit or individual and the employer shall be deemed invalid by the court in accordance with Article 142 of the Securities Law of the People's Republic of China and Article 10 of Judicial Interpretation (I) of the Contract Law.
3. Who is responsible for the losses caused by off exchange fund allocation transactions?
After the off-site funding contract is confirmed to be invalid, if the funding party requests the employer to pay the agreed interest and fees in accordance with the terms of the off-site funding contract, the court will not support it; If the funding party requests to share the income generated by the use of the funding by the user in accordance with the provisions of the off-site funding contract, the court will not support it; If the investor requests compensation from the funding party on the grounds of investment losses caused by the use of the allocated funds, the court will not support it.
Reminder at the end of the article:
Off exchange fund allocation is not protected by law, and the accounts involved are jointly controlled by investors and fund providers, making their security even more vulnerable. Investors should enhance their legal awareness and achieve investment returns through legal means.
The comprehensive content is sourced from the China Securities Regulatory Commission, Heshan District Court of Yiyang City, Ziyang District Court of Yiyang City, and Hunan High Court
