Taiwanese writer San Mao has a famous saying: "Comedies in the world do not require money. Most of the tragedies in the world are inseparable from money." Tragedies caused by money happen almost every day. Around the Spring Festival in 1995, at the same time as the collapse of Barings Bank, another major financial case occurred in our country, which was the "327 Treasury Bond Futures Incident."
In December 1992, the Shanghai Stock Exchange launched treasury bond futures trading to securities firms, and opened it to the public the following year. Since then, treasury bond futures trading has developed rapidly. Due to the downturn in the stock market at that time, commodity futures such as steel, coal, sugar, etc. were suspended one after another. A large amount of funds were concentrated in the treasury bond futures market of the Shanghai Stock Exchange, and treasury bond futures trading became extremely popular. "327 Treasury Bond" is one of the trading varieties, which refers to the three-year Treasury bond issued in 1992.
In the mid-1990s, our country was facing double-digit inflation and bank interest rates were constantly rising. In order to ensure the smooth issuance of government bonds, the government implemented value-maintaining subsidies for already issued government bonds. The value-preserving subsidy rate is announced monthly by the Ministry of Finance based on the inflation index. Therefore, different expectations for the inflation rate and value-preserving subsidy rate have become the main long-short differences in the 327 Treasury bond futures varieties.
The main short side, Wanguo Securities, was the boss of China’s securities industry at the time, and its head was Guan Jinsheng, known as the “Father of China’s Securities Industry.” The reason why Wanguo Securities was bearish on the 327 treasury bonds was that Guan Jinsheng believed that inflation had been initially controlled at that time, and the inflation rate could not continue to rise. In addition, the country's financial resources were empty, and it was impossible to spend such a large amount of money to subsidize the 327 treasury bonds. .
China Economic Development Bank, the opponent of Wanguo Securities, is the full name of China Economic Development Trust and Investment Corporation. This company, which also specializes in securities, has a strong official background. It was first affiliated to the Ministry of Finance and later to Managed by the Central Financial Working Committee of the State Council. Contrary to the expectations of Wanguo Securities, China Economic Development Bank believes that the Ministry of Finance may still adopt an interest rate discount policy, so it is still aggressively long in 327 Treasury bond futures. The subsequent facts actually coincided with the expectations of China Economic Development Bank!
February 23, 1995 was the day of the final decisive battle between the bulls and the bears. In this fight, a dramatic scene occurred. Liaoning International Investment Development Company (Liaoguofa), which teamed up with Wanguo Securities to sell short, also learned about the interest discount on 327 government bonds and began to go long. In this way, the 327 Treasury Bond rose by 2 yuan one minute after the opening, and rose by 3.77 yuan ten minutes later. The collapse of the alliance camp caught the short side by surprise, and Wanguo Securities suffered a devastating disaster. Based on its holdings, the loss will reach more than 6 billion yuan.
In order to protect his own interests, Jin Sheng, the senior manager of Wanguo Securities, made a desperate move and overdrafted a large amount of money 8 minutes before the close of trading (i.e. 4:22), with a huge short position of 7 million lots worth 140 billion. Single rush into the market. As a result, the 327 Treasury Bond fell from 151.98 yuan to 147.50 yuan, and the entire market was shocked. According to the closing price of the day, China Economic Development and Liao Guofa will lose all their money, while Wanguo will not only escape the danger, but even earn 4.2 billion yuan from it!
The power of financial derivatives is like this, either you lose so much that you can’t even afford to lose your life, or you win so much that you can’t even imagine it! February 23, 1995 is known as "the darkest day in the history of mainland China's securities." After several months of investigation and evidence collection, it was determined that Wanguo had violated regulations and held positions without authorization. Only 327 varieties of treasury bonds more than doubled the maximum holdings of all varieties approved by the exchange. At the same time, it sold a large number of short orders in the treasury bond futures market. causing market chaos. It was finally ruled that all transactions after 4:22 were invalid.
The 327 incident brought at least three consequences: in February 1995, the financial futures market was closed; in July 1996, Wanguo was merged with Shenyin; in February 1997, Guan Jinsheng was sentenced to a fixed term of imprisonment 17 years in prison. It is true that many things in ancient and modern times are all made fun of. Today, when my country's stock index futures are about to be launched, looking back on this past event may bring us too much reflection.