Mr. Yang Yue is currently a core member of the financial securities team of Shanghai Sino Analytics, and his practice areas include private fund establishment and investment, dispute resolution, corporate investment and mergers and acquisitions, and corporate legal affairs.
I. Evaluation of the validity of the over-the-counter capital allocation contract
At present, the evaluation of the illegality of over-the-counter capital allocation is mostly found in the relevant regulations and documents of the securities regulatory authorities. At present, there is no legal provision on the validity of OTC capital allocation contracts, and there is no unified guidance on over-the-counter capital allocation in judicial adjudication. The Shenzhen Intermediate People's Court's Adjudication Guidelines on the Trial of Cases Involving Disputes over Over-the-Counter Stock Financing Contracts are only local guiding adjudication rules and do not apply nationwide. Therefore, in judicial practice, the determination of the validity of the OTC capital allocation contract is inconsistent. As to whether the OTC capital allocation contract is valid, the focus is mainly on whether it violates the real-name account system, whether it violates the franchise requirements for margin financing business, and whether it is a situation in which the Contract Law harms the social public interest
(1) The over-the-counter capital allocation contract is invalid
Views that an OTC allocation contract is invalid usually include the following:
1. Violation of the real-name account system constitutes lending and use of securities accounts. Over-the-counter capital allocation violates the relevant provisions of Article 80, Article 166, Paragraph 1, Article 28, and Article 22 of the Measures for the Administration of Securities Registration and Settlement on the real-name system for stock accounts and prohibiting the illegal lending of securities accounts. In addition, the Business Guidelines for Special Institutions and Product Securities Accounts of China Securities Depository and Clearing Co., Ltd. make it clear that holders of special institutions and product securities accounts shall not conduct securities transactions in violation of the law by setting up sub-accounts, sub-accounts, virtual accounts under the securities accounts, etc.; they may not lend securities accounts to others for use. Accordingly, the subject of the lending account is prohibited to include both legal and natural persons.
2. Violating the requirements of the franchise of margin business constitutes the illegal operation of securities business under Article 197 of the Securities Law. According to Articles 122 and 142 of the Securities Law, no institution other than an approved securities company may engage in securities business. Where a securities company provides margin financing services, it shall obtain approval. It is believed that the over-the-counter allocation violates the monopoly of margin business, and even if a securities company engages in two financing business, it also needs to be licensed, so if the general entity provides margin business, it also needs a license, so only a securities company that has obtained the csrcac's license can carry out margin business. Unapproved entities are not allowed to provide margin services for clients to buy and sell securities. In the case of Yan Xuesong, You Huiping and Xinyu Tonglin Investment Consulting Co., Ltd. ((2017) Gan 05 Min Zhong No. 446), the court held that China's laws have strict restrictions on the use of borrowed funds for securities investment, and the development of margin business must be carried out through securities companies and approved by the China Securities Regulatory Commission, that is, only securities companies approved by the CSRC to engage in margin business can lend funds to investors for securities investment.
3. It is a situation in which the Contract Law harms the public interest and violates the mandatory provisions of laws and administrative regulations. The court holding this view held that the over-the-counter stock financing contract circumvented the supervision of the securities market, magnified market risks, and was extremely prone to disputes when the market oscillated sharply, because it violated the real-name system of stock accounts, prohibited the illegal lending of securities accounts, and prohibited the unauthorized operation of securities business. Therefore, in the context of the current market, OTC stock financing transactions objectively undermine the order of the financial securities market, harm the public interest, and violate Article 52 of the Contract Law. For example, the court adopted this view in the lu wei and liang wenjing contract dispute case [(2018) Yue 03 Min Zhong No. 16772] and the Shenzhen Qianhai Cooperation Zone People's Court in the case of Mo Minghua and Niu Bing's over-the-counter stock financing contract dispute [(2016) Yue 0391 Min Chu Zi No. 224].
4. The entrusted financial management contract that illegally promises the minimum return is invalid. In the over-the-counter capital allocation contract, the over-the-counter capital allocation contract is usually provided with fixed income to the funds on schedule, and the fixed income agreement belongs to the provisions of the entrusted wealth management contract to ensure the fixed return of principal and interest, so if the entrusted financial management contract promises the minimum return, it does not conform to the basic principles of the legal relationship between the entrusted agent and the fairness principle of the civil law. The agreement on fixed income has the nature of a guarantee clause, which leads to an imbalance in the civil rights and obligations of the two parties, which does not conform to the basic principle of the legal relationship between the entrusted agent and the principle of fairness of the civil law, and should be invalid. At the same time, because the guarantee clause is a purpose clause of the entrusted wealth management contract, it cannot become a relatively independent contract clause, so the invalidity of the above guarantee clause makes the "Cooperative Investment Stock Contract" signed by the two parties invalid as a whole. In the dispute between Mei Anling and Yichuang Eagle Vision Investment Management (Beijing) Co., Ltd. and Zhang Xin Private Entrusted Wealth Management Contract, the court also held the same view, because the entrusted financial management is for the financial market with higher risk, and the agreement that the principal does not bear the risk of principal loss has the nature of a guarantee clause, which violates the principle of fairness of the civil law and the rules of liability in the entrustment relationship, and also violates the basic economic laws and capital market rules, which should be invalid. Since the guarantee clause is the purpose clause and the core clause of the entrusted wealth management contract, the guarantee clause cannot become a relatively independent part of the invalid part of the contract, and the guarantee clause has no effect, resulting in the overall invalidity of the entrusted wealth management contract.
(2) The over-the-counter capital allocation contract is valid
Views that OTC allocation contracts are valid typically include the following:
1. The current relevant legal provisions on the real-name system for securities accounts and the elimination of account lending are non-effective mandatory provisions. Holding this view, first of all, the relevant regulations do not determine the illegality of over-the-counter capital allocation. Second, mandatory provisions refer to mandatory provisions of validity rather than regulatory mandatory provisions. At present, there are no mandatory provisions on the validity of the invalidity of the over-the-counter capital allocation contract, and the real-name system for securities accounts and the elimination of account lending are only administrative provisions, and their legal rank does not have the right to make legislative judgments on the validity of the contract, so although the over-the-counter capital allocation contract is illegal, it does not violate the mandatory provisions of laws and administrative regulations, and the illegality of the public law of the capital allocation contract is not equivalent to the invalidity of private law.
2. The object of the prohibition of lending accounts is limited to legal persons, non-natural persons. Those who hold this view believe that Article 80 of the Securities Law only prohibits legal persons from illegally using other people's accounts to engage in securities transactions, and does not target natural persons. In practice, the lent accounts may not all be legal person accounts, but have unincorporated accounts such as natural person accounts or partnerships, in which case this clause should not be directly applied. In the private lending dispute between Mao Huafeng and Du Ping, the Shanghai Municipal Higher People's Court held that the loan contract relationship was formed between Mao Huafeng and Du Ping, and the natural person Du Ping was the lender of the loan in this case and not the three-camp company, so it did not support the claim that it was invalid for violating the relevant regulations.
3. Over-the-counter capital allocation is a financing business that does not have a franchise. Those who hold this view believe that there is still a difference between the typical OTC allocation and the two financing businesses, and the OTC allocation is essentially financing, so the two cannot be equated. Secondly, Article 142 of the Securities Law does not indicate the exclusivity of margin trading, and the business scope listed in Article 125 of the Securities Law does not explicitly include margin business, so margin business does not belong to the securities business mentioned above under the Securities Law.
4. There should be no expanded interpretation of the social public interest. Those who hold this view believe that the content of the OTC capital allocation contract is clearly stipulated on the distribution of benefits and the sharing of risks, and its effect only extends to the contract counterparty, and there is no harm to the public interest.
(3) The validity of the contract on the allocation of structured trusts
According to the Operational Guidelines for securities investment trust business of trust companies, the Measures for the Administration of Collective Fund Trust Plans of Trust Companies, and the Notice of the China Banking Regulatory Commission on Issues Related to Strengthening the Supervision of Structured Trust Business of Trust Companies, trust companies established in accordance with law may establish trust plans, and structured trusts established by trust companies have also been recognized, and some courts have also tended to accept the validity of structured trust contracts accordingly, but there have also been cases that have been judicially denied.
1. The contract for structured trust over-the-counter capital allocation is invalid
It is generally held that the contract of structured trust over-the-counter capital allocation violates the Trust Law and violates the "entrustment of others and manages wealth on behalf of others", the trust company allows the inferior rear to act as the actual asset manager in the name of the investment consultant and exercise the right to place orders, and the trust company fails to perform the trust property management obligations, which is suspected of violating the principles of the Trust Law and is suspected of covering up the illegal purpose in a legal form. In September 2015, the CSRC "Notice on Continuing to Do a Good Job in Clearing up and Rectifying Illegal Securities Business Activities" umbrella trusts of umbrella trusts (or their related parties) implement investment decisions separately, trust product accounts that share the same trust product securities account and priority settlors enjoy fixed income, and the stock market over-the-counter allocation of inferior subordinate principals directly executing investment instructions in the form of investment advisers and so on is included in the scope of liquidation, so the contract should be invalid.
In judicial practice, the court held that the "Entrusted Investment Management Agreement" involved in the case of "investment direction is secondary market stock investment with entrusted funds as inferior funds to invest in umbrella trusts, the leverage ratio is 1:2, the cost of trust funds is 8.6% annualized, and if it is not enough for 12 months, the penalty interest is monthly interest", Combined with the specific stock market situation background at the time of signing the contract, that is, in the first half of 2015, the clause should be the core clause, and the purpose of the parties to the contract is to use umbrella trust and leverage to invest abroad and win high returns through high risk; although the "China Securities Regulatory Commission's Notification of the Development of the Financing and Margin Business of Securities Companies" is not an administrative regulation and does not meet the invalid situation, but its purpose is to regulate the allocation of over-the-counter stocks in the context of the specific stock market in 2015. Umbrella Trust's margin business controls financial market risks and maintains normal economic order. Under the background of such strong supervision, the two parties still sign the "Entrusted Investment Management Agreement" for the purpose of external investment in the form of umbrella trust and leverage, which is a violation of social and public economic order, and according to the regulations, it should be invalid. In addition, based on the high conductivity of financial risks, although the amount of investment projects involved in this case is not high, under the specific stock market conditions at that time, if market entities are allowed to circumvent state supervision of the securities market through channel business and other modes under the specific stock market conditions at that time, it not only undermines the stable and orderly orderly securities market order, but also leads to a sharp increase in financial risks, which may harm the interests of unspecified investors in the securities market, which is an act that harms the social public interest, according to the provisions of Article 52, Item 4 of the Contract Law. Should also be invalid.
2. The contract for structured trust capital allocation is valid
Those who hold this view believe that the structured trust established by trust companies in accordance with relevant regulations is also recognized, and the Opinions on Clearing and Rectifying Illegal Securities Business Activities and the Notice on Continuing to Do a Good Job in Clearing and Rectifying Illegal Securities Business Activities issued by the CSRC require the liquidation and rectification of relevant trust product accounts, and do not determine whether the validity of the trust plan itself is illegal. Second, in a structured trust, the priority settlor provides funds and enjoys fixed income, and the inferior lower-level settlor can allocate capital with less funds, thus using leverage to win high returns in the secondary market. The financing function of a structured trust is an ancillary effect produced by its structured form, but this financing function does not belong to the financing and margin behavior regulated by the Securities Law, and the distribution relationship between the priority beneficiary and the subordinate beneficiary is an arrangement made according to the needs and risk preferences of different settlors. In addition, the subject regulated by Article 142 of the Securities Law is a securities company, not a trust company. In other laws and regulations, this form of financing is not expressly prohibited.