Northbound funds have always been an important weather vane for the market, this round of rise is inseparable from the "engine" of northbound funds, and northbound funds are inevitably "mixed"-mainland funds go south, adding leverage to return to A shares.

Each bull market is inseparable from leverage, and the leverage artifact must be allocated capital. In the context of strict supervision, there are still a variety of ways to operate, including the leverage added by the allocation company itself, the entire allocation leverage can still reach 16 times.

In fact, the regulatory management of capital allocation has been intensive. In February, the CSRC spoke out on the issue of capital allocation; on March 8, a meeting on the regulation of over-the-counter capital allocation was held; and on March 18, the news of those responsible for participating in capital allocation was released. The whole event runs quite rhythmically. It has been revealed that at the regulatory level, scientific and technological means have been used to regulate the over-the-counter allocation of funds in the mainland. However, according to a survey by Chinese reporters of securities firms, off-site capital allocation activities have not stopped as a result.

Wearing a "vest" of mainland funds, leveraged back to A shares, is an important role in this round of capital allocation. In other words, the allocation of capital is not limited to the mainland, after the interconnection of the stock markets of the two places, the allocation of capital (margin) in Hong Kong is more worthy of attention. According to the Chinese reporter of the securities firm, there are four main ways to allocate capital at present.

Reveal the four ways of allocating capital

The method of allocating capital in the mainland is basically the same.

1. Single account allocation is a multi-mode.

That is, the investor puts the deposit into the individual account set up by the capital allocation company, and then the capital enters the leveraged fund according to a certain leverage ratio to operate. The role of the sales department in this process is to supervise the funds to ensure that there will not be a situation in which the allotment of money will not be shared by the allotment of money, and that the allotment company will not take away the deposit. The allocation of capital in this model is common in all major sales departments. Some old people in the business department even joked that without these investors, it would be difficult for many business departments to survive.

2. The bypass of financial accounts is a relatively hidden model that many capital allocation companies like.

After the investor opens a financial account in a securities company, the securities firm can raise money with a maximum of 1.5 times the leverage, and before that, the investor may have made a mezzanine (because it is personal behavior, in many cases, supervision is more difficult), the actual leverage ratio of this model is relatively high.

If the investor gives 100 million of the capital, can do 100 million of the mezzanine, and then through the two financial plus 1.5 times the leverage, the investor's leverage can be put into 4 times, and the investor's leverage to the allotment of investors, the current common practice is 3-4 times, which means that, in the end, the capital leverage that the distributor can operate has reached 16 times.

According to the reporter's survey, recently, many securities firms' two financing business has been suspended or strictly regulated, but there are still some capital allocation business in the use of this model. According to people from the brokerage business department, the annualized cost of the two financing companies is generally no more than 8%, while the annual cost of capital allocation can reach 14% or more, which means that there is about 6% arbitrage space in the middle. This is very attractive to the capital allocation company.

3. The trust model is a model that seems to be relatively compliant.

According to document No. 58 of the CBRC, "opinions of the General Office of the China Banking Regulatory Commission on further strengthening the risk Supervision of Trust companies", in principle, the investment fund allocation ratio of priority beneficiaries to inferior beneficiaries of trust products shall not exceed 1:1, the maximum shall not exceed 2:1, and the leverage ratio of inferior beneficiaries shall not be exaggerated in a disguised form. In other words, the capital allocation company can operate by issuing trust products.

By the same token, the capital allocation company has contributed 100 million yuan, according to the 1:2 lever, the capital can be enlarged to 300 million yuan, and if there is a mezzanine in the middle of the capital allocation company, the leverage can be even larger. However, there is a flaw in this model. According to industry insiders, double-leveraged trust products are required to be equipped with at least 20 per cent of fixed income products, so capital efficiency may be relatively low.

4. The market may have ignored another model-the Hong Kong Channel.

According to industry insiders, it is not illegal to allocate capital through Hong Kong securities firms, and the financing interest rate is relatively low, mostly between 3% and 4%, and the leverage level can be up to 6 times.

Mainland financiers can set up accounts with securities firms in Hong Kong, and after entering the margin, they can give the account to allocators to operate and buy shares through the Shanghai Stock Connect or Shenzhen Stock Connect.

Among them, customers and rationing parties have more room for bargaining. During the A-share rally, although the US dollar was not strong, the Hong Kong dollar frequently touched weak guarantees, while the bond market and the real estate market were quiet, indicating that a lot of money was buying A-shares through the conversion of Hong Kong dollars into renminbi.

HOMS-like systems have not disappeared.

Judging from the reporter's understanding, the capital price of the capital allocation company is not cheap. On the whole, the price of the capital allocation is between 1.1% and 1.5% per month, and each capital allocation company is not the same. The annualized interest rate thus reaches 13%. Compared with the interest rate of the two financial institutions and the interest rate of bank loans, the price of funds at this level is quite high, and the official price of the two financial institutions is 8.35%. But many securities companies are already below that price, and the price center should be around 7%, while the interest rate on bank mortgages is only 6.65%. The allotment price is equivalent to more than twice the normal capital price.

It is worth noting that HOMS-like systems have not disappeared. HOMS attracted a lot of attention from regulators after the 2015 stock market crash, and its developer, Hang Seng Electronics (quoted in 600570), was fined for it at one point. However, according to the reporter's understanding, at present, there are still many capital allocation companies equipped with systems similar to HOMS, which can be used to split positions.

In the above two financing model and trust model, this system is the most widely used, because the capital demand of a single client is often not that large. Customers with too much capital demand will also cause enough vigilance of the capital allocation company. If the capital allocation is used to pick up the shares, the capital allocation company will suffer great losses. A person from the capital allocation company said that the sub-warehouse system similar to HOMS has a realistic demand for the capital allocation company.

Large-scale inspection of off-site funding may be enabled with high technology.

The reporter learned in the interview that the supervision of private capital allocation may have used the high technology of artificial intelligence. Recently, a picture about monitoring capital allocation circulated on the Internet shows that there seems to be a clear understanding of the characteristics of capital allocation, both at the regulatory level and at the securities business department level.

The first warning of OTC allocations this year was on February 25, when a spokesman for the CSRC responded to market reports of a rise in OTC allocations, noting the recent increase in reports of OTC allocations. In this regard, the CSRC pays close attention and guides the parties concerned to strengthen the supervision of the whole process of transactions in accordance with the law. All securities companies should strictly implement the management of the appropriateness of brokerage business and margin trading customers, strengthen the monitoring of abnormal transactions, and conscientiously do a good job in the security protection of technical systems. At the same time, it is also hoped that the majority of investors will invest rationally and guard against investment risks.

On March 8, the Securities Industry Association convened a special meeting of some securities firms in Beijing, mainly on external access and strictly prohibited capital allocation; on the same day, the Shenzhen Securities Regulatory Bureau also held a relevant meeting in Shenzhen; at the same time, some local securities regulatory bureaus have taken prompt action to conduct on-site inspection of off-site illegal capital allocation of securities companies within their jurisdiction. On March 7 and March 8, Guangdong Securities Regulatory Bureau and Zhejiang Securities Regulatory Bureau respectively convened a discussion with the heads of relevant securities business departments in their jurisdiction, both of which involved the strict prohibition of off-site capital allocation.

On March 18, more important news came out. According to a notice issued by Zhejiang Securities Regulatory Bureau, Jin Weiqi, as the head of the securities business department of Hangzhou Wener Road, the first securities company, illegally provided intermediaries or other facilities for financing between clients of other securities companies and lending securities accounts, and provided false confidence and concealed relevant major matters in the process of checking the above matters by Zhejiang Securities Regulatory Bureau.

As a result, the Zhejiang Securities Regulatory Bureau has determined that Jin Weiqi is an inappropriate person and shall not hold the posts of directors, supervisors, senior managers and heads of branches of securities companies or actually perform the above-mentioned duties within 2 years from the date of the decision. The first Securities shall, within 30 working days from the date of receipt of this decision, make a decision to exempt Jin Weiqi from the head of the securities business department of Hangzhou Wen er Road Securities.

And on the same day, Liu Qiang, head of the securities business department of Baotou Iron and Steel Street of Northwest Securities, was also punished because Liu Qiang, the head of the business department, participated in over-the-counter capital allocation and disturbed the order of the securities market.