Shanghai Composite Hits Decade High, Securities Sector Rallies with Brokerage Adding "Immediate Liquidation Line"

On May 11th, the three major indices opened higher collectively, with the Shanghai Composite Index reclaiming the 4200-point level and setting a new high since July 2, 2015. The securities sector saw a broad rally, with Guangdong Golden Dragon Development Inc. (000712.SZ) hitting the daily limit-up. Shares of Changjiang Securities, East Money Information, Soochow Securities, Caitong Securities, and Orient Securities Company Limited (600958.SH) also advanced notably.

As the A-share market continues its positive trajectory, sell-side institutions are generally optimistic about a valuation recovery for leading brokerages. Data shows trading volume increased month-over-month in May. As of May 8th, the average daily stock and fund trading volume since the beginning of May reached 3.6296 trillion yuan, a surge of 151.49% compared to May of the previous year and an increase of 27.62% from the previous month. The balance of margin trading and securities lending stood at 2.7864 trillion yuan, up 54.05% year-on-year and 9.67% higher than at the start of the year. Since May began, three companies have completed IPO issuances, raising a total of 4.301 billion yuan (counted by issuance date).

A Soochow Securities research report indicates that as of May 8th, the expected average price-to-book ratio (PB) for the securities industry (excluding East Money Information) for 2026 is 1.3 times, with the expected average PB for large brokerages at only 1.1 times. Huayuan Securities research suggests that the year-on-year growth rates for market stock/fund turnover and margin trading/securities lending scale in April continued the high-growth trend from the first quarter, which may benefit brokerage and margin trading businesses. They recommend leading brokerages capable of meeting diverse client needs and possessing strong international business capabilities.

Notably, as margin trading balances have risen significantly recently, Orient Securities Company Limited plans to introduce a new 115% "immediate liquidation line" to refine liquidation procedures and strengthen risk control for margin trading. Recently, the firm announced on its official website that, effective May 18, 2026, it will add an "immediate liquidation line" monitoring indicator for its margin trading business, with the parameter set at 115%.

According to the announcement, the "immediate liquidation line" refers to a specific maintenance margin ratio value set by the company to monitor the risk status of a client's credit account. After the market close on day T, if a client's maintenance margin ratio falls below the immediate liquidation line, the client must raise the ratio to the standard liquidation line or above before the market close on the morning of T+1. Otherwise, the company has the right to execute a forced liquidation after the market close on the morning of T+1. The company stated it reserves the right to dynamically adjust a client's immediate liquidation line parameter based on market conditions, its own risk management needs, the client's risk tolerance, and other factors.

Customer service from Orient Securities Company Limited further explained that this new rule adds a 115% immediate liquidation line on top of the existing 130% maintenance margin ratio liquidation line. "If a client's maintenance margin ratio after the close is below 115%, they need to replenish it to above 130% before the close the following morning. If the client fails to meet the standard by that time, the company has the right to begin liquidation after the close the following morning," the representative said.

The so-called liquidation line refers to the maintenance margin ratio threshold set in margin trading. When an investor's maintenance margin ratio falls below this standard and they cannot promptly repay debts or provide additional collateral, they face the risk of forced liquidation by the brokerage. According to the "Implementation Rules for Margin Trading and Securities Lending Transactions," the maintenance margin ratio for an investor's credit account must not fall below 130%.

Currently, many brokerages in the industry have added similar "immediate liquidation lines" to further refine the original warning and liquidation lines. Although parameters, names, and execution standards vary among firms, the overall trend points towards strengthening preemptive risk control to cope with market volatility. For instance, both Ping An Securities and Galaxy Securities have a 115% liquidation red line—the former calls it an "emergency liquidation line," the latter a "minimum line." Breaching this line gives the brokerage the right to force liquidation on the next trading day. Guosen Securities has set a 115% "next-day liquidation line" for accounts with specific permissions, such as for the ChiNext, STAR Market, and Beijing Stock Exchange, requiring investors to replenish the ratio to 130% before the market close the following morning. Guotai Junan Securities and Haitong Securities have also set corresponding 110% "emergency liquidation lines," with rules consistent with those mentioned above.