July 13, 2015

The real reason for the June stock market crash

Who is the ultimate beneficiary

"2015 Stock Market Crash Originated in Hangzhou: Revealing the Hang Seng HOMS System and Over-the-Counter Allocation" (Source of this article: Silicon Financial Text/Xu Dilong)

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In 2015, the A-share market ushered in a bull market that had not been seen in seven years, with the Shanghai Composite Index once exceeding 5,000 points, and the ChiNext stock market rising wildly.

1. Two features of the Hang Seng HOMS system that are very popular with private placements

First, the assets managed by private equity funds can be separated and managed by different traders. For example, if a private equity fund manages assets of 1 billion yuan, it can divide it into 10 shares through HOMS and hand them over to 10 traders for management, so that you can see which trader has the lowest average buying price or the highest selling average price through the system, which has an evaluation mechanism. In addition to the evaluation mechanism, the HOMS system also has a risk control mechanism, such as the management of instructions through the system, requiring traders to buy specific stocks only within a certain price range. These features are particularly important for private equity funds.

The second feature is flexible positioning. For example, many private equity funds now issue different products through different companies, and it is inconvenient to manage these products in various places, HOMS provides a set of solutions for private equity funds to solve the problem of not only dividing products, but also corresponding different products to different traders, and solving the problem of insufficient traders and split positions that plague private equity funds.

Later, these features were noticed by some underground funding companies, who found that using Hang Seng's HOMS system could not only flexibly split positions, but also easily implement risk control for financing customers, which automated the previously manual operation process.

Second, huge profits detonate over-the-counter allocation

Allocation is to borrow money to speculate in stocks, you out of 1w and others out of 9w, this is 10 times leverage, earning 10% is equivalent to earning 10,000 relative to the principal doubled, down 10% of the company will be forced to liquidate, shareholders lose all the principal.

Over-the-counter capital allocation is due to the high threshold of "margin trading" and strict control of leverage ratio.

However, private over-the-counter capital allocation is the traditional usury, usury in Wenzhou, Taizhou and other places in Zhejiang Province has always been prosperous, and the profits are amazing, but the risk control of this industry has always been relatively primitive, often can only be achieved through the means of underworld collection.

In 2014, as the government encouraged the innovation of Internet finance, some P2P companies gradually discovered the advantages of the HOMS system in risk control, and joined the capital allocation industry, and formed a business model of fixed income products for users on the liability side and stock financing customers on the asset side, forming a large number of over-the-counter capital allocation companies. Traditional usury became more sophisticated through the Internet, which set the stage for the June stock market crash.

The company takes Hang Seng Electronics' HOMS system as the core, and the form of expression seems to be just a stock account that can be operated by many people, but in fact, the system has broken through the supervision of the China Securities Regulatory Commission, such as foreign capital can enter the stock market through the HOMS system, and there is no need for any ID card, household registration book, and the regulator does not know who sold it, and the most terrible thing is that in fact, HOMS has realized a complete set of brokerage system, that is to say, the top-level state-owned brokerage is just an interface, Anyone can open a private brokerage on their own, and they can also develop downlines.

In Snowball's review of the Hang Seng HOMS system, there is a passage: "In 2014, a bank changed all that. … A bank found that compared with industrial credit, the risk of stock allocation is really small, and the funds are completely controllable, as long as the risk control is done, the risk is also completely controllable. As a result, the green light was given to the capital allocation business and the supply was opened. The first solution of the trust company was to use the form of an umbrella trust to wholesale the bank's funds, split them into a scale of at least 1 million, and retail them to the financiers. They rely on low-interest, standardized operations; The market was detonated in an instant. And the account tool that the trust company uses to do this is the HOMS system. His sub-account management system can split the trust account into multiple independent account units, which can be independently engaged in securities trading. For the private allocation business, for the first time, there is no restriction on funds and accounts, and in the face of strong demand, the market is crazy. The bank lends money to the trust company and receives 6% a year; Trust companies wholesale 7-9%, and capital companies directly to customers, starting from 24%. Profiteering. ”

3. Next, let's talk about the development process of the June stock market crash

Step 1: Management takes an inventory of the over-the-counter allocation

In fact, the China Securities Regulatory Commission has long felt that the risk of over-the-counter capital allocation is relatively large, and it has wanted to check since January 1 this year, but it has not really taken action, mainly due to several considerations:

1. The current government as a whole is conniving at financial innovation, hoping to innovate first and then regulate, and the government's argument is that it hopes that private capital will participate in the financial industry,...... It is hoped that excessive regulation will not be allowed to stifle this vitality;

2. The stock market has a task for economic reform, and it is necessary to raise funds for the reform of state-owned enterprises and entrepreneurship for the whole people, so if the investigation is too strict, I am afraid it will be difficult to complete the entire arduous task;

3. Some backs. The landscape factor is very tricky..., many over-the-counter allocations are in cooperation with some city commercial banks, the back of the bank. You know;

But then the scale of the over-the-counter allocation is getting bigger and bigger, the first half of the year is easy to reach 1.4 trillion, if the country does not make a move, maybe the money of the entire banking system will flow into the stock market through a variety of channels, and then the governance will be more troublesome, so the regulator finally made up his mind to strictly investigate the allocation, but the regulator did not consider so much according to the previous experience of governing the stock market, so he made a decision to cut off the entire HOMS system.

This triggered a domino effect, and an unprecedented June stock market crash began.

The second step is to trigger the short-selling of the company

After receiving the notice, a part of the allocation capital needs to be withdrawn considering the risk of the policy, and the shareholders who use the allocation capital, the allocation of funds, other institutions in panic, and retail investors form a joint force to sell a large number of stocks.

Originally, the system of capital allocation was very perfect from a local point of view, and it was also a sure profit after falling to the liquidation line to the customer after forced liquidation, but from the overall point of view, this is not the case, when the entire HOMS system sells at the same time, it will make the stocks with capital chips concentrated fall to the limit, and they cannot be sold after the fall limit.

The allocation has earned enough, and their money is borrowed from the trust, they need to withdraw as soon as possible, and they can't pretend to be dead like retail investors, so they can only continue to sell the next day, due to the large scale of funds, they continue to fall the next day, and the two falling limits trigger more 1:5 leveraged capital allocation of the closing line, so all the matching companies have to start closing positions, and after the 1:5 liquidation, they continue to close 1:3, continue to close the position, and eventually lead to the entire stock market all the way down.

Since many stocks fall to the limit, brokers, funds, and capital distribution companies can not sell these stocks that fall to the limit, so they can only hedge through stock index futures, especially IC1507. The market exerted pressure, leading to further declines.

The third step is to trigger the umbrella trust and close the position

The leverage of the umbrella trust is between 1:2 and 1:3, and the leverage of margin trading is between 1:1 and 1:2. For a time, all institutions and retail investors in the entire stock market are desperately selling, often falling as soon as the market opens, so no one dares to take over, and institutions can't throw away cash. goods, can only be hedged through stock index futures, stock index futures and accumulation. Goods fell, entering a vicious circle.

Therefore:

The most fundamental reason for this round of stock market crash is that the profit margin of the real economy is too low in the general environment, hot money has nowhere to go, the state has relaxed financial supervision, and bank credit has flowed into the stock market through wealth management products, umbrella trusts, P2P wealth management and over-the-counter capital allocation companies, forming systemic financial risks.

Fourth, in the first half of the year, who made money in the stock market and who lost money in the stock market?

So since the stock market is a zero-sum game, there are always people who make profits and losses, where does all this money go? In order to answer this question, let's first take a look at who made the money from the stock market rally in the first half of the year:

1. Executives reduced their holdings by 500 billion, creating the largest reduction in the A-share market in history.

2. In the first half of 2015, the amount of IPO funds raised led the world, with a total financing of 146.1 billion.

3. Stamp duty received nearly 100 billion yuan in the first five months of this year

4. Equity pledge of 2 trillion yuan, and many listed companies mortgaged their equity to banks in the first half of the year

5. Over-the-counter capital allocation. (The profit must be astronomical.) ）

6. Interest and commissions of brokers and banks

7. A small number of retail investors who left the market early

Therefore, the majority of the money in the stock market is made by listed companies and private equity institutions that have successfully invested in the primary market, followed by the government, then by institutions that receive interest and commissions, and finally by a small number of retail investors in the secondary market. Now that stocks are falling, most institutions and retail investors are locked up at high levels, in essence, wealth has flowed from the money of most social groups to a small number of elite groups.

Therefore, I have a good wish, I hope that the money can be returned to invest in the primary market, support entrepreneurs to innovate and start businesses, and truly prosper the real economy and capital market, instead of spending 500 million to buy a painting in the United States after reducing his holdings, and that's it!