Concerning Futures Trading Qualification & Not Captivated by Illegal Platforms

Source: China Securities Regulatory Commission www.csrc.gov.cn

In recent years, more and more illegal futures activities have occurred, in particular, the illegal futures trading activities in the name of commodity stocks have repeatedly occurred even if banned, seriously infringing the legitimate rights and interests of investors, damaging the reputation of the futures market and causing adverse effects in society. In the first half of 2017, the third session of inter-ministerial joint meeting for cleaning and regulating trading venues and the “Looking Back” work exchange meeting were held, transmitting the policies and measures regulating local trading places. At the same time, some district courts have successively made judgments on illegal futures trading activities by law, providing reference for investors to identify illegal futures trading activities.

Here, we take an electronic trading platform as an example. As a trading place reserved after the regulation activity, the platform relied on the spot, and adopted the standardized electronic matching of contracted bidding, T+0, daily debt-free settlement, leverage, margin, forced liquidation and other trading methods, and collected commission charge as profit. However, the general manager of the platform, Xie, deputy general managers Zheng and Chen, and other related personnel unauthorizedly developed the so-called “market maker” and outsourced certain trade products including xylitol, liquid alkali, glycerin, hydrogen peroxide, formaldehyde and oxalic acid. These market makers furthermore developed their agents, and they together openly marketed via the Internet, WeChat, telephone, etc., induced customers to increase investment with small profits by means of using the back-end data provided by the platform to provide “correct intelligence”, and then provided false market information and reversely manipulated prices, resulting in substantial losses for investors. The market makers and the platform divided the funds lost by the investors, 85% for the market makers and 15% for the platform, and the 85% was further distributed between the market makers and their agents. According to statistics, Xie, Zheng, Chen and others jointly obtained illegal benefits totaling RMB 79,723,200. In November 2015, the three were respectively sentenced to life imprisonment, 13 years in prison and seven years in prison for fraud, and fines were imposed accordingly.

In cases that have occurred or been sentenced, criminals often use commodity spot trading as a cover to induce investors to participate in illegal futures trading activities, causing the investors to suffer property losses. Investors should be highly vigilant it, and pay special attention to the following two aspects: one aspect, the spot commodity trading usually adopts “one-to-one” negotiation means between buyers and sellers to determine the contract terms such as variety, price, quantity, and delivery date, but cannot use the centralized trading methods prohibited by No. 37 File Guofa (2011) and No. 38 File Guobofa (2012) such as collective bidding, continuous bidding, electronic matching, anonymous trading, and market makers; the other aspect, physical spot transactions usually occur in commodity spot transactions, rather than closing the transaction by clearing the bid-ask spread. If someone is persuading you to participate in the "commodity spot transaction" that does not match the above characteristics, you are requested to be careful not to be involved in illegal futures trading activities and you may report it to the local public security institution.

Article 6 of the Regulations on the Administration of Futures Trading expressively stipulates that no unit or individual may establish a futures exchange or organize futures trading and related activities in any form without the approval of the State Council or the approval of the futures regulatory authority of the State Council. However, in practice, criminals often take advantages of futures trading and establish various spot trading platforms or centers because the trading system is special, which is suspected of illegal business. In fact, to identify illegal futures activities, we only need to consider the following four perspectives: Firstly, identify the qualification of the market. According to the above provisions, the futures business needs to be approved by the China Securities Regulatory Commission and obtain the corresponding business qualifications. Otherwise, it will be an illegal institution. Investors can log on to the China Securities Regulatory Commission website, the China Futures Association website to view the information of legal futures operators and their employees, or verify the information of relevant institutions and personnel with the local securities regulatory bureau. Secondly, identify marketing methods. Some lawless persons like to claim to be "teachers" and "futures deity" and advocate that those who follow him will make big money, emphasizing the benefits and understating risks. Investors need to know that any investment in financial products, including futures, follows the basic principle of “high returns come with high risks” and “there's no such a perfect product as a free lunch”. Legitimate futures operating agencies are guided by the appropriateness system and pay attention to “selling the right products to suitable investors”, without such false propagandas. Investors are requested to be alert when encounter such exaggerated propagandas. Thirdly, identify the Internet website. The illegal futures websites are often composed of letters and numbers with no specific meaning, or counterfeit via changing or adding letters and numbers to that of the websites of legitimate futures operators. Investors may check the websites of the legal futures operating agency on the website of the China Securities Regulatory Commission or the China Futures Association website and identify illegal futures websites. Do not log in to the illegal futures website to avoid getting into the trap and being deceived. Fourthly, identify the payment account. A legal futures operating agency can conduct business only in the name of a company, and open a bank account in the name of the company only, but illegal institutions often open a collection account in the name of an individual. If you are requested to put money into an account opened in the name of an individual, you may decisively refuse it.

This article is taken from the official website of China Securities Regulatory Commission “Risk warning and prevention for investors" - Case of “Protecting Investor • Knowing Rules & Identifying Risks”