We believe that a substantial amount of Huishan’s shares are pledged to lenders. If we are
correct, this presents a risk to long holders because the borrower(s) could have their positions
liquidated in a disorderly fashion if they are unable to meet a margin call.
We analyzed date from Hong Kong’s Central Clearing and Automated Settlement System
(“CCASS”), which houses data for all settled trades on the Hong Kong Stock Exchange that
indicate large numbers of Huishan shares have been pledged, most likely as collateral for
personal loans. CCAS data includes the date the holding last changed, the holdings of each
participant across the market, the net daily movements of holdings in each stock and of holdings
by each participant, as well as the time series of holdings by one participant in one stock. In the
case of brokers, this gives one a clearer idea of what stocks they deal in most, and if one has a
margin account, what the pool of collateral might include. This collateral pool is often pledged
to lenders, and if its value falls suddenly then it can trigger a brokerage collapse.
Types of CCASS Participants are brokers, custodians, pledgees, clearing houses and Investor
Participants (IPs). The CCASS IDs of brokers are prefixed "B". Broker participants may also be
pledgees, and custodians may hold pledged stock. Except for investor participants, CCASS
Participants may or may not have beneficial interests in the shares they hold in CCASS, so it
can’t be used as a guide to beneficial ownership.
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