The tragedy of LeTV's suspension: Financing customers face a black hole of losses
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LeTV's "indefinite" suspension of trading has left more and more financing customers facing a black hole of losses. While public funds collectively lowered LeTV's valuation, some securities firms' margin trading businesses also began to lower LeTV's fair value, with the largest adjustment being "halved" from the company's suspension price. China Business News learned that due to the serious deterioration of LeTV's financial situation, Guojin Securities will adjust LeTV's fair value to 11.18 yuan from November 22. After the adjustment, margin customers will calculate the market value of LeTV's holdings at 11.18 yuan, and the margin ratio will also change accordingly. Not long ago, CITIC Securities, Haitong Securities and other brokerages also lowered the fair value of LeTV.com, among which CITIC Securities lowered it to 7.82 yuan. The reporter learned from margin trading investors and brokerage personnel that as brokerages lowered the fair value, many margin trading customers faced liquidation, and those with high positions were already insolvent, and breach of contract disputes were likely to arise. Although the Shenzhen Stock Exchange removed LeTV from margin trading on October 27, the 3.3 billion margin trading will still exist. Since LeTV was suspended, the interest borne by margin traders has reached nearly 200 million yuan. The interviewed margin traders believe that LeTV's "indefinite" suspension is unprecedented in the margin trading field and has also challenged the margin trading rules. In addition to the heavy interest, many LeTV margin traders are in a "quasi-explosion" state. However, securities law experts said that under the existing regulations, if there is no supervision to determine that LeTV has violated the regulations, it will be difficult for margin trading investors to recover their losses. The black hole of losses for financing customers After LeTV released its third-quarter report, brokerage firms also joined the ranks of lowering their stock price expectations. In early November, CITIC Securities issued a business announcement stating that LeTV had been suspended for a long time and released its third quarter report on October 28, 2017. According to the margin trading business rules and the provisions of the "Margin Trading Business Contract", CITIC Securities decided to adjust the fair price of LeTV to 7.82 yuan from November 6, and calculate the maintenance margin ratio based on the adjusted fair price. A senior margin trading investor told the reporter that for LeTV's margin trading customers, this price will put those with positions of more than 30% to 40% in a "quasi-margin call" state, with losses generally ranging from 50% to 60%. Many of those with positions worth tens of millions will definitely face the "fatal loss" of margin trading. Not only CITIC Securities, but also some securities firms are adjusting the fair value of LeTV.com in due course. Take Haitong Securities as an example. On November 20, Haitong Securities announced the latest fair value of LeTV.com as 13.87 yuan. Guojin Securities announced a few days ago that due to the serious deterioration of LeTV.com's financial situation in the third quarter report, many fund companies and securities firms lowered their valuations of the securities. In order to prevent risks, the fair value of LeTV.com will be adjusted to 11.18 yuan on November 22, and it is said that it may be adjusted several times according to the subsequent market and LeTV.com situation. "We are still waiting and watching. There is no reduction in (fair value). As long as the interest can be paid and the guarantee ratio is normal, we will still extend the term for customers. It is best if the customers have the money to pay it back. No one can predict how much they will lose after the resumption of trading." The person in charge of margin trading business of a Shanghai brokerage firm said in an interview with Caixin that if the low fair value given by some brokerage firms is used, many margin trading investors of LeTV have reached the liquidation line and many margin trading investors will experience liquidation. The person believes that the suspension of LeTV is the first case in the market, and more brokerages are also waiting to see how the matter will be handled in the future. It is not ruled out that more brokerages will continue to lower the fair value of LeTV. The aforementioned margin trading investors believe that compared with the valuation cuts by public funds, the fair value cuts by brokerages will bring more severe losses to investors. "If the fair price continues to fall, many people will be liquidated two or three times. Those with heavy positions and high concentrations may lose their lives. According to previous situations, many people will choose to default and give up completely," the person said. Margin trading defaults occurred in 2015 when the stock market fluctuated abnormally, and margin traders and brokers went to court over this. More than one person working in margin trading at a brokerage firm believed that due to the long-term suspension of LeTV and the losses of margin trading investors caused by capital risks, the brokerage firm had no further responsibility and was only fulfilling the contract. On the contrary, as a creditor, when the margin trader clearly refused to repay the debt, the brokerage firm had the right to sue. Can compensation be sought from listed companies? "After this kind of 'black hole', (clients) suffered huge losses, and many were insolvent, and had to ask brokers to close their positions. This situation was quite helpless and embarrassing." A margin trading person in Beijing told reporters that facing the suspension of LeTV, margin trading clients seemed to have no better solution, and could only pay interest according to the contract and fulfill relevant obligations to repay debts. His advice was also "to settle it quickly if you can get money." Data shows that LeTV's margin trading balance peaked at 5 billion yuan, accounting for more than 11% of its market value. When it was suspended on April 18 this year, the margin trading balance was still over 4.4 billion yuan, and the last public balance on October 27 was 3.298 billion yuan, still accounting for 8.47% of its market value. Since the suspension for seven months, LeTV has had margin redemptions ranging from one million to ten million yuan every day. The reporter learned that the current interest rate for margin trading is around 8.5% per annum, and some major customers have a minimum annual rate of at least 6%. Based on this calculation, the interest on the 3.298 billion yuan financing has exceeded 160 million yuan since LeTV.com was suspended. Some investors have told China Business News that they are "overwhelmed" by the high interest rates. LeTV's unprecedented long-term suspension means that investors still have to pay interest while they are unable to trade. Some investors in margin trading are quite dissatisfied with this, believing that LeTV should be held responsible for the losses of investors and may be sued by investors in the future. Zhang Yuanzhong, managing partner of Beijing Wentian Law Firm, told reporters that although the investors are willing to seek compensation, the prerequisite is that the regulator must determine that LeTV has violated relevant regulations, and the investors have suffered losses as a result. "LeTV's current suspension is allowed by the regulator. If the China Securities Regulatory Commission later determines that it violated regulations or had other problems, investors in margin trading, including general investors, can pursue losses." In fact, the interviewed margin trading investors feel helpless because the current losses of LeTV margin trading customers are "unspeakable". Although the securities firms are not responsible for this, the relevant trading rules are considered to have room for improvement, such as whether the suspension period of margin trading targets should be stipulated, and if the suspension period lasts for a certain period of time, the target of margin trading will be removed. "Before the last abnormal stock market fluctuations, there were regulations on the suspension of margin trading targets. The longest suspension was half a year, and customers were required to repay their debts if the suspension exceeded half a year. After that, the suspension was relaxed, and the loan period would be extended as long as the interest could be paid normally and there was no problem with the guarantee ratio." The interviewed margin trading managers believed that LeTV's margin trading might lead to more investment disputes in the future, which made the securities firms very embarrassed. All the securities firms could do was to follow the contract. As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity. |
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