Typical Cases of Securities and Futures Claims Handling in Guangdong Jurisdiction

Case 1:

Demands for multiple superposition problems to be solved one by one

A listed company in Guangdong jurisdiction intends to provide hundreds of millions of yuan of entrusted loans to participating companies, and its interest rate is not lower than 115 of the benchmark interest rate for the same period. A relevant announcement was issued on May 24, 2014, and an extraordinary general meeting of shareholders is scheduled to be held on June 10. Deliberate relevant proposals through on-site voting.

After the announcement, small and medium-sized investors generally believed that the return rate of the transaction was too low, and there was suspicion of benefit transmission. At the same time, Company A still had some outstanding bank loans with higher interest rates. The transaction affected the earnings of listed companies. As a result, a number of investors have asked Company A to open online voting to facilitate the majority of small and medium-sized shareholders to exercise their voting rights, and Company A refused to open it on the grounds that there was no clear requirement for this in the relevant regulatory regulations. Subsequently, a number of investors have called the Guangdong Securities Regulatory Bureau to make the same claim.

The bureau immediately urged Company A to assume the primary responsibility for handling complaints, and pointed out to the company that although regulatory regulations did not explicitly require such matters to open online voting, the State Office's Opinions on Further Strengthening the Protection of the Legal Rights and Interests of Small and Medium Investors in the Capital Market clearly encourages listed companies to fully adopt online voting to convene shareholder meetings, and hopes that the company will re-study the matter. Under the guidance of the bureau, Company A added a supplementary announcement on May 29 to provide online voting methods, and the demands of small and medium investors were responded.

One wave is flat, one wave after another, investors once again called the regulatory authorities to put forward two demands, hoping that Company A will disclose the information of the borrower in this motion in detail, and at the same time hope that the company's major shareholders will avoid voting on the motion. Company A, in accordance with the requirements of the regulatory authorities, issued an announcement on June 6, supplementing the disclosure of the borrower's financial and equity structure and other information for the original disclosure of non-exhaustive matters.

In order to establish a harmonious shareholder relationship, on the day of voting at the general meeting of shareholders, the major shareholders of the company actively avoided voting without mandatory provisions of laws and regulations. The bill was not passed by 93.68 per cent of the votes against it, with small and medium-sized shareholders actively voting against it.

So far, small and medium investors have effectively participated in the company's major investment decisions, gave full play to their active role in modern corporate governance, and all their demands have been responded to, and the contradiction with major shareholders has been eased.

This case gives us at least two enlightenment:(1) small and medium-sized investors are increasingly concerned about the exercise of their own voting rights, participation rights, supervision rights and other rights. As a public company, listed companies should patiently listen to the demands of small and medium-sized investors and respect the right of small and medium-sized investors to express their opinions when making decisions on major issues. (2) Practice has proved that smooth online voting channels are conducive to ensuring that small and medium investors exercise their rights in accordance with the law. The "Rules for Shareholders' Meetings of Listed Companies" subsequently issued by the China Securities Regulatory Commission clarified that the shareholders' meetings of listed companies adopt online voting and other methods in accordance with the law to ensure that small and medium investors can conveniently and efficiently exercise shareholder rights. Investors should also actively participate in voting, express their wishes and voice in a rational and orderly manner, and safeguard their rights and interests in a legal and compliant manner.

(Contributed by Guangdong Securities Regulatory Bureau)

Case 2:

Risk mismatch should not take the initiative to take responsibility should be affirmed.

In June 2014, the Guangdong Securities Regulatory Bureau received an anonymous complaint from investors, reflecting that in the process of selling "A-bond securities investment funds" by the business department of a securities company in its jurisdiction, there were exaggerated returns, concealed risks, and investors who did not have the corresponding risk tolerance. Promote and sell the fund, and ultimately cause investors to lose a large area of violations.

After receiving the complaint, the bureau immediately sent personnel to the securities business department for on-site verification, and during the verification process, informed the headquarters of the securities company of the relevant situation. The company attaches great importance to it and takes positive actions. On the one hand, it appeases investors and urgently allocates risk compensation to relevant branches; on the other hand, it conducts a comprehensive self-examination of the sales appropriateness of the product, especially the product rating, publicity content and caliber, and customer risk matching.

Through self-examination, it is found that the fund product is rated as "low risk" in the company's internal risk rating, and the sales target should be customers with risk tolerance of "cautious" and above. However, in actual sales, there are hundreds of customers who are below the "cautious" risk level and have not confirmed the risk, and the subscription amount is relatively large.

The company further analyzed that there was such a serious mismatch of appropriateness. The main reasons are as follows: First, when the company's wealth management headquarters issued the fund sales notice, it did not clearly inform each business department of the fund's risk level. Second, there are defects in the information system. The company provides investors to subscribe for the fund in both off-market and on-market ways. However, the clients subscribed by the company on-market do not have the function of automatic matching and prompting investors to confirm risks. As a result, investors who subscribe for the fund through on-market channels can only manually perform appropriate matching and confirmation through the business department, and some business departments do not carefully match investors and products due to incomplete information and inadequate process implementation, it also failed to perform adequate risk warning and confirmation duties. Third, some business departments violated the company's regulations and hired unqualified personnel to engage in fund product sales, which reduced the standardization of sales behavior.

Based on the above factors, the company believes that there are omissions in the control of each process and link of its own sales appropriateness system, which together lead to the consequences of appropriateness mismatch, and should bear the main responsibility.

According to the conclusion of the self-examination, the company carried out risk warning and assessment demotion to the internal responsible department, and imposed a notice of criticism and deduction of bonus on the relevant responsible person.

At the same time, in order to make up for the losses of investors and protect the legitimate rights and interests of investors, the company has taken the initiative to provide a variety of remedial measures for investors to choose from, including successively issuing three phases of collective asset management plans to connect with the original fund; for customers who are unwilling to accept the product docking scheme, the company will directly compensate 120 customers according to their losses, The total amount reached 1.05 million yuan. The company said that for subsequent complaints of the same cause that may occur, compensation will be paid according to the same standard to ensure that investors whose rights and interests are damaged are compensated in place.

Although there are some problems in the appropriateness management of the company, the attitude of the company to take responsibility after the event should be affirmed. At the same time, the case tells us:(1) Securities companies and their employees should treat "selling appropriate products to suitable investors" as their inherent obligations, overcome improper interest impulses, and at the same time improve the employee assessment mechanism to prevent the phenomenon of only paying attention to business and ignoring the obligation of appropriateness. (2) Securities companies should strengthen the mechanism and process construction of appropriateness management, especially improve the electronic level of investor risk assessment and matching, and eliminate the risk mismatch caused by human errors. (3) Investors should establish a sense of rational investment. When purchasing funds and wealth management products, they should not simply listen to the salesperson's side of the story, but should fully and carefully understand the product's risk-return characteristics, purchase and redemption regulations and other important information. Their own financial goals, risk tolerance, etc., rationally choose financial products that suit them.

(Contributed by Guangdong Securities Regulatory Bureau)

Case 3:

Indiscriminate stock recommendation leads to disputes, admitting mistakes and apologizing and losing money.

In August 2014, Tan, a customer of a securities business department in the jurisdiction, complained to the Guangdong Securities and Futures Association (hereinafter referred to as the "Association"), reflecting that he opened a securities account under the persuasion of Zhang, an employee of the business department, and under his strong recommend The purchase of a certain stock resulted in a loss, and then Zhang recommend futures hedging products to Tan in order to obtain income to cover the previous stock loss and promised to compensate for the loss. After the same loss in the futures account, Zhang did not fulfill his promise to compensate for the loss, and Tan negotiated with Zhang's business department to no avail.

By mutual consent, the case was mediated by the Association's mediator. After understanding, Zhang admitted that he did not have the qualification of securities investment consultant, had recommend stocks to Tan according to a company's research report, and provided suggestions on futures investment varieties and trading direction according to his own judgment, but denied that he had guaranteed the investment income or promised to compensate for the loss.

At the same time, the sales department also provided relevant evidence to prove that the sales department's daily management of employees and marketing personnel is compliant and responsible, and also made sufficient risk disclosure to customers and reminders of employee practice restrictions.

In addition, Tan and Zhang originally had a very good personal relationship, so Tan trusted Zhang's investment proposal very much. And Zhang also believes that Tan, as his friend, may speak more casually when providing investment advice, without considering the language norms that he should have as a professional securities practitioner, thus causing Tan's misunderstanding.

Under the analysis and persuasion of the mediator, both parties made certain concessions and reached the following consensus: 1. Zhang apologized for the loss caused by the relevant investment proposal. 2. Zhang agreed to pay Tan a certain amount of financial compensation. Finally, the two sides signed a mediation agreement under the organization of the mediator.

This case tells us:(1) Securities companies should strengthen the management of investment advisory business and eliminate irregularities in the provision of securities trading advice by non-securities investment advisers. (2) Securities practitioners should distinguish between private contacts and job responsibilities, handle the relationship between relatives and friends after becoming customers, and maintain the standardization and professionalism of practice. (3) Investors should establish a sense of rational investment, should not simply listen to other people's suggestions to buy and sell stocks and futures, but should make investment decisions prudently after a comprehensive and detailed understanding of the relevant situation.

(Contributed by Guangdong Securities and Futures Association)

Case 4:

Responsibility for losses caused by forced liquidation without notice

Guangdong Securities and Futures Association (hereinafter referred to as "the Association") received a complaint from Zhang, a customer of a futures business department, reflecting that at 9:07 on December 1, 2014, the business department forcibly closed out its 24-hand soybean oil Y1501 without informing him, resulting in its losses. Zhang believes that the business department is operating in violation of regulations and requests the association to resolve it.

The association informed the business department of Zhang's complaint in time, and asked the business department to contact investors in time, explain carefully and handle it properly. It is understood that on November 28 of that year, the external market plummeted, resulting in the domestic futures market soybean oil contract market after the opening of the market on December 1, Zhang's risk rate increased sharply, and its margin ratio has been lower than the standard of the exchange. The company's wind control personnel directly took forced liquidation measures to effectively control the risk. After self-examination, the company believed that it had a certain fault, so it apologized to Zhang and gave him certain compensation and commission concessions for his losses. Zhang was satisfied with the results.

This case tells us:(1) before forcing the closing of a position, the futures operating institution must first take a reasonable and effective way to notify the customer to add margin within the time agreed in the contract or require the customer to close the position on his own. The second paragraph of Article 35 of the Regulations on the Administration of Futures Trading stipulates: "When the customer's margin is insufficient, the customer shall promptly make a margin call or close the position on his own. If the customer fails to make a margin call or close the position on his own within the time specified by the futures company, the futures company shall forcibly close the customer's contract, and the relevant expenses and losses incurred shall be borne by the customer." In addition, in the futures brokerage contract signed by both parties, it is also clearly agreed that the futures company should notify the customer before forcibly closing the position. Therefore, if the futures company fails to fulfill the notice obligation, it will bear the corresponding civil liability. (2) Futures trading is a typical margin trading, forced closing is a unique risk prevention and treatment measures of futures trading, in this regard, futures operating institutions should provide customers with adequate investor education and risk tips to ensure that the relevant appropriate measures can be put in place.

(Contributed by Guangdong Securities and Futures Association)

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Nanhua Instruments Co., Ltd.

Add: 1 Kehong, Rd., Guicheng, Nanhai District, Foshan City, Guangdong 528251 CHINA
Tel: +86 757 86718778
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Tel: +86 757 86718629
Email: Export@nanhua.com

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