A recent ruling by the Shenzhen Intermediate People's Court has clarified the allocation of responsibility for losses resulting from delayed forced liquidation in futures trading. In a case involving a gold company and a jewelry firm, the court determined that the futures company bears 70% of the liability for losses incurred due to its failure to execute a timely forced liquidation.
The dispute arose from a client agreement signed in July 2019, where the jewelry company authorized the gold company to conduct gold trading on the Shanghai Gold Exchange on its behalf. The contract specified forced liquidation rules and stated that the jewelry company would bear any losses exceeding the account equity.
On March 29, 2024, the jewelry company's account showed a negative equity of 2,599 yuan, with available funds at -307,523.46 yuan. The gold company issued multiple warnings about high risk levels and demanded additional margin deposits.
By May 21, 2024, the account situation worsened with equity falling to -289,272.87 yuan. Despite acknowledging the margin call and promising to deposit funds, the jewelry company failed to do so within the specified timeframe. The gold company also neglected to execute forced liquidation.
The Shanghai Gold Exchange eventually forced liquidation of the account on May 22, 2024, resulting in losses of 290,002.02 yuan. The gold company sued to recover these losses with interest.
The court ruled that futures trading must strictly adhere to margin requirements. By permitting continued trading after the account became under-margined and ultimately negatively equity, the gold company effectively allowed overdraft trading.
Although the gold company had fulfilled its warning obligations, its failure to promptly execute forced liquidation constituted gross negligence. The court assigned 70% responsibility for the losses to the gold company. The jewelry company, as a professional market participant that promised but failed to deposit additional margin, was held 30% responsible for its contributory negligence.
This case establishes that forced liquidation is a mandatory obligation for futures companies, not merely a discretionary right. Companies cannot delay this duty due to personal relationships, system delays, or human error without bearing primary liability. Meanwhile, investors must recognize that "buyer beware" does not absolve them of all responsibility—failure to honor margin commitments will result in shared liability.
The court emphasized that futures companies serve as risk firewalls between clients and exchanges. Delays in forced liquidation that lead to negative equity ultimately create debts for futures companies, threatening the security of the entire clearing system. In scenarios permitting client overdrafts, forced liquidation constitutes both a self-protection right and a statutory duty that must be diligently performed.
In a separate landmark case, the court established precedent for civil compensation in market manipulation disputes. The case involved investor Lin who suffered losses of 157,169.56 yuan trading Sanfo Outdoor equipment company shares during a period when former director Yi manipulated the stock.
The court determined July 14, 2020 as the date when the manipulation's effects dissipated, and August 16, 2021—the first trading day after investigation disclosure—as the revelation date. Since Lin's transactions occurred before the revelation date and after the effects dissipation date, the court presumed him to be a bona fide investor unaware of the manipulation.
Applying causation presumption principles, the court held Yi liable for Lin's full losses after Yi failed to provide evidence disproving the connection. The ruling demonstrates that illegal market manipulation now carries substantive financial consequences through civil compensation, extending beyond administrative penalties.
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