Margin Financing and Securities Borrowing and Lending (SBL) refer to the loans of funds or securities by a securities company to its customers for the latter’s purchase of securities with such funds (‘Margin Financing’) or selling of such securities (SBL) on specific stock exchanges or securities trading platform approved by the State Council, whereupon customers shall provide Eligible Collateral (including cash or eligible securities).
Key characteristics of Margin Financing and SBL compared with Brokerage trading
1. Borrowing funds or securities: Investors can borrow funds from securities companies to purchase securities, or borrow securities from securities companies to sell.
2. Eligible Collateral: Apart from providing brokerage services, the securities company also acts as a lender to investors. Therefore, it is necessary for investors to pledge Eligible Collateral (cash or eligible securities) into a Credit Account (including the securities purchased with Margin Financing and cash obtained from SBL) being maintained with securities company in advance to any loan drawdown.
3. Eligible securities and loan period
a) There are limits on the scope of securities that investors are allowed to purchase or borrow through Margin Financing or SBL. In addition, there are limits on the scope of securities that qualify as Eligible Collateral.
b) Loan tenor cannot be longer than 6 months, but investors can apply to extend loan period upon maturity, subject to securities company’s final approval.
4. Leverage risk: Due to the leveraged nature of Margin Financing and SBL, invertors’ returns or losses may be magnified. In the case of significant losses, investors may not only lose all their principal but also incur additional debts.
Before participating in the Margin Financing and SBL business, investors should carefully read the ‘Margin Trading Contract’ (《融资融券业务合同》) and ‘Risk Disclosure Statement of Margin Trading’ (《融资融券交易风险揭示书》), to fully understand the business rules, and to conduct assessments on related product risks and to ensure sufficient financing is in place. If there are any changes in laws and regulations, the latest changes shall prevail.
Disclaimer: The above English content is for reference only. For detailed information, please refer to the Chinese page of the website. The Chinese version shall prevail in case of any discrepancy or inconsistency between the Chinese page and its English translation.
