Shenwan Hongyuang Futures offering interest return for margin deposit

[TheDawn]

Well, the "327" event in 1995 is indeed interesting.

That incident is quite long ago. So I had not experienced of it.

My thought is that both long and short of that bond futures in year 1995 involved some insider trading. And traders of both sides got over-confident.

And which site caused bigger trouble, in this incident, it was the short sellers, got more severe legal punishment. It's measured by damage and risk they brought to the exchange. Many of them had traded far beyond their margins.

So it's not about which side was helping the government fixing inflation, but mostly about traders betting much more money than they actually can pay. And it's also about the exchange didn't have right risk control by then.

There're many things been fixed since this event. And as always, the top rogue trader went to jail.

And more details can be read here. Treasury Bond Incident, Lessons (ebrary.net)

Yes I already quoted that website in my previous comment:

Why did they put somebody who was helping the government with his trading activities in jail especially when his trading activities was helping the government to achieve what they wanted to achieve faster? I don't get it. https://ebrary.net/11532/economics/treasury_bond_incident

Second, why nullify the transactions of the short side only?? This puzzles me even more. If you are saying both sides were engaged in insider trading and were trading in bigger sizes than what they should be, then the fair thing to do is to nullify transactions of BOTH sides, both the long and short side. The long side, from what I read from the article from ebrary.net actually engaged in heavier trading than the short side and started earlier during that day and one ally company of Wanguo securities that was supposed to go short switched side and went long instead so that shows that obviously "insider trading" like what you stated from the long side was just as bad and maybe even worse than the short side and yet none of the long transactions got nullified and none of the security companies that went long in their transactions got punished let alone going to jail??

And thirdly, the exchanges nullified the transactions at PRECISELY where the price was pushed to the highest level of the day and since all of the exchanges in China are owned by the Chinese government, it's clear that the government preferred that the government bond futures' prices go up and not down even though from an economic point of view, the prices of the government bond futures going down would help the government with its inflation-fighting objective. That's why I was really confused why the government would choose to punish the company that shorted the government bond futures when his transactions made more sense from an economic point of view. And I was even more confused that not only the government caused the security company to suffer substantial trading losses but also threw the CEO in jai!!

 

[TheDawn]

Stay away from those fucking obscure Chinese shady operators, advertisers, marketers...not one single of them is in the remotest reliable nor trustworthy, not one. I speak from many years of experience directly in that region and industry. And it always, always turns out that certain things come about through some crazy, totally unexpected events. "the daughter of the CEO of Wang Wang Bang Bang Securities whored around town and got preggy by some Ferrari driving mob member and in retaliation daddy stole funds out of the corporate chest to wage war on the seed spreading evil doer. The mother of the mobster, let's call her Dingding, did not like that all too much and subsequently called up her previous sugar daddy who bought her several apartments. Said sugar daddy just happens to be in a high up position with the securities regulator and low and behold days later the CEO of WangWang Dang Dang gets a polite visit from the securities Gestapo and taken away in an unmarked car never to be seen again. The board of Wang Wang Dang Dang Securities decides to change the name of the company and tries to wipe any and all history that points to the previous company off the Chinese "Internet" (yes there are fake eggs in China hence there must be a fake internet). Months later, the new entity in the shitter, it decides to hire a few thirsty and hungry of the former 2cent army like Lx008 (isn't this a convenient choice of nick, one step up from 007) to promote the new entity. On comes Lx008 to offer us a deal we just can't refuse. Arn't the Chinese on top of things. This in summary is my impression and experience of Chinese in both HK and in particular China. You can make real money in HK and China selling your grandma (and many other hopes and dreams as long as you find someone dumber than yourself). You would not survive a single day in China without a healthy dose of cynicism.

Well just to put it in perspective that Ferrari-driving mob member deserved everything that he got. Just because some girls were whoring around doesn't mean you can actually bang her. Hasn't he heard of sexual harassment? Jesus he needs to take those sensitivity training courses. LOL

 

[lx008]

My guess is that, with the data released by the exchange, the trade happened at 16:22 PM that day, involved 23 orders of each 900000 lots of short in a very short time, and many orders afterward as well, and near 90% of shorts for that futures contract on that day came from Wanguo seat.

So by the standard of trading beyond the margin and the effect of price manipulation, Wanguo had been considered as the number one culprit.

Trades before 16:22 PM, though also aggressive, seems more "normal". That could be the logic for the ruling of the exchange.

And as you know, the government didn't like what happened with that bond futures contract, so the bond futures had been banned until year 2013.

And many others also got fired, including the CEO of the exchange, and many went to jail as well, not only CEO of Wanguo.But as this CEO used to be a market star, so most attention was on him.

Yes I already quoted that website in my previous comment:



Second, why nullify the transactions of the short side only?? This puzzles me even more. If you are saying both sides were engaged in insider trading and were trading in bigger sizes than what they should be, then the fair thing to do is to nullify transactions of BOTH sides, both the long and short side. The long side, from what I read from the article from ebrary.net actually engaged in heavier trading than the short side and started earlier during that day and one ally company of Wanguo securities that was supposed to go short switched side and went long instead so that shows that obviously "insider trading" like what you stated from the long side was just as bad and maybe even worse than the short side and yet none of the long transactions got nullified and none of the security companies that went long in their transactions got punished let alone going to jail??

And thirdly, the exchanges nullified the transactions at PRECISELY where the price was pushed to the highest level of the day and since all of the exchanges in China are owned by the Chinese government, it's clear that the government preferred that the government bond futures' prices go up and not down even though from an economic point of view, the prices of the government bond futures going down would help the government with its inflation-fighting objective. That's why I was really confused why the government would choose to punish the company that shorted the government bond futures when his transactions made more sense from an economic point of view. And I was even more confused that not only the government caused the security company to suffer substantial trading losses but also threw the CEO in jai!!

 

[TheDawn]

My guess is that, with the data released by the exchange, the trade happened at 16:22 PM that day, involved 23 orders of each 900000 lots of short in a very short time, and many orders afterward as well, and near 90% of shorts for that futures contract on that day came from Wanguo seat.

So by the standard of trading beyond the margin and the effect of price manipulation, Wanguo had been considered as the number one culprit.

Trades before 16:22 PM, though also aggressive, seems more "normal". That could be the logic for the ruling of the exchange.

And as you know, the government didn't like what happened with that bond futures contract, so the bond futures had been banned until year 2013.

And many others also got fired, including the CEO of the exchange, and many went to jail as well, not only CEO of Wanguo.But as this CEO used to be a market star, so most attention was on him.

Yes but they didn't punish the long side at all. That's the strange part. I understand the short side might be more aggressive but the long side was also very aggressive and actually started first right in the beginning of the trading day. They were able to push the opening price from 148 RMB all the way to 151.5 RMB with 800K lots. There is NO WAY that the long side was able to trade in such large lots without going over its margin limit and yet nothing happened to the long side. NONE of the long trades got nullified and nothing happened to the companies that went long on that day. I mean if the exchange had at least canceled some long trades as well and/or set the price to at least mid-way between the highest and the lowest price of that day (151.98 + 147.5) /2 = 149.74 RMB but punished the short side more by fining the company or etc. because the company Wanguo violated its margin limit more then your explanation of "because the short side is more aggressive" would make more sense otherwise it doesn't. Your explanation might be the official explanation but it does not explain what happened.

I am just simply puzzled why the government would take such one-sided action against the short side especially like I said before that shorting the government bond futures would actually help the government to fight inflation better which was what the government was trying to do. Who else went to jail besides Wanguo's CEO? Can you list them? All I read from the ebrary article and the rest of the internet was that only Wanguo's CEO went to jail and that head of the exchange resigned and that's it. The long side's transactions weren't even canceled. How could the traders who went long be going to jail?? LOL

 

[lx008]

with some public information, I can list:

Zhongjinkai, the securities brokerage firm affiliated with the Ministry of Finance, which had gone very long, the biggest long--the company been closed by the government years later, citing its violation of regulation.


Dai Xuemin, vice CEO of Zhongjinkai, the head trader for Zhongjinkai in this 327 incident, ran away from China, arrested years later.

Gao ling, Gao yuan: Gao brothers running Lioguofa company, the firm turned from short to long side in this incident, been accused for trading violation, ran away from China. Not arrested so far.

Liu Han, one major long side trader, sentenced to death penalty years after.

Wei Dong, another leading long side trader for Zhongjinkai, committed suicide during crime investigation years after.

Maybe there're still some traders convicted and I didn't know. But Wanguo CEO was the most famous one and had all media coverage. Actually many traders from both sides got punishment.

Many long side traders also went to jail for trading violation but they were quite young and obscure by then, so were not covered by foreign media. And some of them just narrowly absconded to foreign countries.

Yes but they didn't punish the long side at all. That's the strange part. I understand the short side might be more aggressive but the long side was also very aggressive and actually started first right in the beginning of the trading day. They were able to push the opening price from 148 RMB all the way to 151.5 RMB with 800K lots. There is NO WAY that the long side was able to trade in such large lots without going over its margin limit and yet nothing happened to the long side. NONE of the long trades got nullified and nothing happened to the companies that went long on that day. I mean if the exchange had at least canceled some long trades as well and/or set the price to at least mid-way between the highest and the lowest price of that day (151.98 + 147.5) /2 = 149.74 RMB but punished the short side more by fining the company or etc. because the company Wanguo violated its margin limit more then your explanation of "because the short side is more aggressive" would make more sense otherwise it doesn't. Your explanation might be the official explanation but it does not explain what happened.

I am just simply puzzled why the government would take such one-sided action against the short side especially like I said before that shorting the government bond futures would actually help the government to fight inflation better which was what the government was trying to do. Who else went to jail besides Wanguo's CEO? Can you list them? All I read from the ebrary article and the rest of the internet was that only Wanguo's CEO went to jail and that head of the exchange resigned and that's it. The long side's transactions weren't even canceled. How could the traders who went long be going to jail?? LOL

 

[TheDawn]

with some public information, I can list:

Zhongjinkai, the securities brokerage firm affiliated with the Ministry of Finance, which had gone very long, the biggest long--the company been closed by the government years later, citing its violation of regulation.


Dai Xuemin, vice CEO of Zhongjinkai, the head trader for Zhongjinkai in this 327 incident, ran away from China, arrested years later.

Gao ling, Gao yuan: Gao brothers running Lioguofa company, the firm turned from short to long side in this incident, been accused for trading violation, ran away from China. Not arrested so far.

Liu Han, one major long side trader, sentenced to death penalty years after.

Wei Dong, another leading long side trader for Zhongjinkai, committed suicide during crime investigation years after.

Maybe there're still some traders convicted and I didn't know. But Wanguo CEO was the most famous one and had all media coverage. Actually many traders from both sides got punishment.

Many long side traders also went to jail for trading violation but they were quite young and obscure by then, so were not covered by foreign media. And some of them just narrowly absconded to foreign countries.

Yes but not directly as a result of being long in this 327 incident but from something else. But anyway my point is not about who went to jail or not or who got punished and who didn't; I just used that as an illustration to show that the government is obviously biased towards long side trading over short side trading. My main point is the shorting of the government bond futures was actually helping the government achieve its inflation-fighting objectives faster from an economics point of view and why was it frowned upon? It's obviously clear that long transactions were favoured over short transactions no matter how you try to explain it.

None of the long side transactions were nullified and the price was adjusted EXACTLY to the highest price level of the day. If you say the long-side trading was just as aggressive and violated trading rules, then why weren't the long transactions nullified like the short transactions and even with the price pushed up by the long-side trading being established as the closing price of the day? You are still not able to answer that question: If the long side trading was just as bad, why weren't the long transactions nullified and instead the price was even adjusted to the highest price level of the day pushed up by the long side traders?

 

[lx008]

Those questions are tricky, and my guess is

1, when facing the evidence of （the most）heavy-handed market manipulation especially those trades by Wanguo seat at 16:22 PM, the government really didn’t care which side of trade was helping fighting inflation, but to settle those market disorder. The priority is to find and punish the number one culprit. And in this case, it’s Wanguo seat.


2, the highest price for the bond futures that day is 151.98 around 13:00 pm, and the exchange chosen the last trade right before 16:22 pm, that’s 151.30 as the close price. And settle price for the day calculated as 150.58. So it was not adjusted to the highest price.


For why not just cancel the whole day of trading, I think it’s quite a difficult decision. I can’t think of a case of cancelling a whole day of trading from LME or CME or any other major exchange, so nullified the most outraged trades after 16:22 pm was an easier choice by that time.


Was it a perfect solution ？ No, so the CEO of the exchange got fired after that. And government bond futures got grounded. Only re-listed after 18 years in CFFEX.

 

[TheDawn]

with some public information, I can list:

Zhongjinkai, the securities brokerage firm affiliated with the Ministry of Finance, which had gone very long, the biggest long--the company been closed by the government years later, citing its violation of regulation.


Dai Xuemin, vice CEO of Zhongjinkai, the head trader for Zhongjinkai in this 327 incident, ran away from China, arrested years later.

Gao ling, Gao yuan: Gao brothers running Lioguofa company, the firm turned from short to long side in this incident, been accused for trading violation, ran away from China. Not arrested so far.

Liu Han, one major long side trader, sentenced to death penalty years after.

Wei Dong, another leading long side trader for Zhongjinkai, committed suicide during crime investigation years after.

Maybe there're still some traders convicted and I didn't know. But Wanguo CEO was the most famous one and had all media coverage. Actually many traders from both sides got punishment.

Many long side traders also went to jail for trading violation but they were quite young and obscure by then, so were not covered by foreign media. And some of them just narrowly absconded to foreign countries.

In here, the price of a bond is inversely related to the discount rate or the prevailing interest rate meaning that the higher the interest rate, the lower the price of the bond is. That's just how a bond, any bond including government bonds is priced. Since China at the time was trying to fight inflation so obviously it would be raising the discount rate or the interest which means naturally the price of the bond would go down. That's why Wanguo Securities and this other ally company like you said Lioguofa company were shorting the bonds which was the correct thing to do. Any bond traders in the world Wanguo's position, given the market situation and government action at the time, would've shorted the 327 government bond futures which is a good thing because that would've pushed the yield on those bonds or bond futures even higher attracting more people to buy those government bonds and less consumer goods and etc., and that brings the price down and thus ease inflation according to economics theory. But somehow in China, an increase in interest rate leads to higher bond prices?? Is that how bonds in China are priced? Otherwise why would some traders be going long on those 327 government bond futures in the first place?

 

[lx008]

In here, the price of a bond is inversely related to the discount rate or the prevailing interest rate meaning that the higher the interest rate, the lower the price of the bond is. That's just how a bond, any bond including government bonds is priced. Since China at the time was trying to fight inflation so obviously it would be raising the discount rate or the interest which means naturally the price of the bond would go down. That's why Wanguo Securities and this other ally company like you said Lioguofa company were shorting the bonds which was the correct thing to do. Any bond traders in the world Wanguo's position, given the market situation and government action at the time, would've shorted the 327 government bond futures which is a good thing because that would've pushed the yield on those bonds or bond futures even higher attracting more people to buy those government bonds and less consumer goods and etc., and that brings the price down and thus ease inflation according to economics theory. But somehow in China, an increase in interest rate leads to higher bond prices?? Is that how bonds in China are priced? Otherwise why would some traders be going long on those 327 government bond futures in the first place?

I think for the long term they're correlated, but within a single trading day, the price could go around as random walk or just pushed around by big money.

like price of crude oil, you can see it could go around in range of 60~80 in several days without much change of supply and demand.

 

[TheDawn]

Those questions are tricky, and my guess is

1, when facing the evidence of （the most）heavy-handed market manipulation especially those trades by Wanguo seat at 16:22 PM, the government really didn’t care which side of trade was helping fighting inflation, but to settle those market disorder. The priority is to find and punish the number one culprit. And in this case, it’s Wanguo seat.

What Wanguo did is not market manipulation, or would not have been considered so in western markets. He might have been over-leveraged but his shorting action albeit very aggressive would not have been considered market manipulation. I am not saying this because I am trying to help Wanguo or whatever. I am just telling you how things are in the western market. Everybody is allowed to short just as much as you are allowed to buy as long as you post enough margin.

2, the highest price for the bond futures that day is 151.98 around 13:00 pm, and the exchange chosen the last trade right before 16:22 pm, that’s 151.30 as the close price. And settle price for the day calculated as 150.58. So it was not adjusted to the highest price.

For why not just cancel the whole day of trading, I think it’s quite a difficult decision. I can’t think of a case of cancelling a whole day of trading from LME or CME or any other major exchange, so nullified the most outraged trades after 16:22 pm was an easier choice by that time.

151.30 or 150.58 was still too high and those prices were clearly the result of equally aggressive long trade transactions. As I mentioned to you earlier, the fairer price to be established on that day would've been the mid-price between the highest and the lowest price of the day at 149.XX if you deem both the long and short side transactions to be equally invalid. Nullifying an entire day of transactions is, I agree, is way too drastic and destructive as far as market information goes which is why that's never done here in the West but since it's obviously done in China so that's why I suggested nullifying long side transaction as well since the long side is just as aggressive unless of course the government favours the long side which is the obvious case here.

Was it a perfect solution ？ No, so the CEO of the exchange got fired after that. And government bond futures got grounded. Only re-listed after 18 years in CFFEX.

Well I personally suspect the main reason why the CEO of the exchange is fired is because he let the short trading to take place in the first place more than anything else. The perfect solution is just to stay out of the market and let the market forces play out. The government's job is just to supervise the market and prosecute trading with insider trading but when you have a market participant that is affiliated with the government the Ministry of Finance itself and possesses insider information directly trades in the market, that gets a little difficult. LOL