What signal is conveyed by the brokerage adding a new "115% instant liquidation line"?

Recently, Dongfang Securities announced on its official website that starting from May 18, 2026, a new monitoring indicator called “Immediate Close-Out Line” will be added to the margin trading and securities lending business, with a parameter set at 115%.

According to the announcement, the “Immediate Close-Out Line” is defined as a specific maintenance margin ratio value. The specific rule is: after the close on day T, if the investor’s credit account maintenance margin ratio falls below the Immediate Close-Out Line, they must raise the ratio to at least the close-out line before the market close on the morning of T+1; otherwise, the company has the right to execute forced liquidation after the market close on T+1.

Simultaneously, Dongfang Securities has announced a change to the terms of its margin trading and securities lending contracts. This means that the 115% Immediate Close-Out Line is written into the standard contract and applies as a rigid constraint to all margin trading clients. Compared to the conventional close-out line of 130%, the Immediate Close-Out Line indicator has a shorter window for replenishment, higher requirements, and more rigid enforcement, significantly compressing the risk management cycle under extreme market conditions and effectively preventing account margin breaches.

Our investigation found that several other brokerages in the industry already have similar mechanisms, such as Guotai Haitong setting an “Emergency Close-Out Line,” Galaxy Securities establishing a 115% “Minimum Line,” China Merchants Securities setting a 110% “Early Margin Call Line,” and Guosen Securities setting a 115% “Next-Day Close-Out Line” for certain authorized accounts. The specific values are set by each broker based on their own risk assessments, with slight differences in naming conventions, and some brokerages have not set this indicator at all.

What is the “Immediate Close-Out Line”? How does it differ from the conventional close-out line?

To understand this adjustment, it is first necessary to clarify the fundamental differences between the two core risk control lines in margin trading and securities lending.

The conventional close-out line is 130%, which is the industry-standard baseline for broker margin trading. The rules are relatively lenient: if on day T the maintenance margin ratio falls below 130%, investors have a one-day buffer until the close on T+1. As long as they restore the margin ratio to above 130% before the close on T+1, they can avoid forced liquidation. Under this mechanism, brokers generally also retain room for negotiation, extension, and flexible close-out procedures.

In contrast, the 115% Immediate Close-Out Line is entirely different. The rule set by Dongfang Securities is: if on day T the ratio falls below 115%, the investor only has a half-day window until the market close on the morning of T+1, and must directly restore the maintenance margin ratio to at least 130%, not merely to 115%. If the threshold is not met in time, the company has the right to initiate forced liquidation after the market close on the morning of T+1, with no full-day negotiation flexibility.

A person in charge of margin trading at a brokerage told us that the Immediate Close-Out Line is set independently by each broker based on their own risk levels, with common industry values at 110% and 115%. Some brokerages have not set this indicator. Its core features are a shorter window, higher replenishment requirements, and less flexibility.

Multiple brokerages already have similar mechanisms, but with different names and enforcement levels

In fact, Dongfang Securities is not the only brokerage in the industry to set such rapid close-out indicators. Our review shows that several brokerages have similar arrangements, but with notable differences in naming, parameters, and enforcement strength.

Guotai Haitong Securities has established an “Emergency Close-Out Line.” According to their contract terms, if the credit account’s maintenance margin ratio falls below this line at the end of the day and the client has not increased the ratio above the alert level as required, the broker has the right to execute forced liquidation and recover corresponding claims starting from the next trading day (T+1).

Galaxy Securities refers to it as the “Minimum Line,” set at 115%. Their rules are more direct: if after the day’s settlement the maintenance margin ratio is below 115%, the company has the right to execute forced liquidation on the next trading day. Galaxy Securities also explicitly states that this indicator can be adjusted within the scope announced by the stock exchange based on circumstances.

China Merchants Securities’ “Early Margin Call Line” is set at 110%. The rules are more complex: if the ratio falls below this line on day T, the investor must raise the ratio to the margin call close-out line or above before the market close on T+1; otherwise, the company has the right to forcibly liquidate. Additionally, after the end of day T+1’s settlement, the investor must raise the ratio to the margin call release line or above, or face forced liquidation.

Guosen Securities’ “Next-Day Close-Out Line” mainly targets credit accounts with permissions for ChiNext, STAR Market, and Beijing Stock Exchange, set at 115%. Clients must replenish collateral before the market close on the next trading day to ensure the maintenance margin ratio is not below 130%; otherwise, the broker has the right to forcibly liquidate.

From the above, it is clear that although each brokerage differs in naming, parameters, and specific enforcement details, the common trend is to add a shorter window, faster enforcement risk control line below the standard 130% close-out line.

Why add this? Broker explanations: proactive risk control to prevent margin breaches

In response to this rule adjustment, a person in charge of margin trading at a brokerage explained the current industry practices and risk control logic.

He stated that the industry-standard margin trading contract originally did not include an Immediate Close-Out Line like 115%. The conventional margin close-out line is set at 130%, with a warning line at 140%. Differentiated risk control mainly falls into two modes: one, for some high-net-worth and special clients, brokers sign supplementary agreements with personalized close-out ratios and position concentration limits; two, for clients unable to replenish margins promptly, the risk control rules themselves have flexible adjustment space.

In the industry view, Dongfang Securities’ inclusion of the 115% Immediate Close-Out Line into the standard contract aims to strengthen proactive risk control and prevent margin breaches.

The logic is that if a stock hits a limit-down, and the account’s maintenance margin ratio falls below the 130% standard close-out line, the original process requires replenishment on T+1 and execution of liquidation on T+2, which takes a relatively long time. Under extreme market conditions, the value of collateral may further decline during this period, easily leading to large margin breaches.

Adding the 115% Immediate Close-Out Line is akin to adding a “warning + rapid disposal” line below 130%. Once the investor’s ratio drops below 115%, and if they do not restore it to 130% within half a day, the broker can initiate liquidation, greatly shortening the risk exposure window and avoiding the hidden danger of margin breaches under extreme market conditions from a rules perspective.

Dongfang Securities also revealed in its annual report last year that it has built a dynamic risk prevention mechanism for its margin trading business, enhancing intelligent risk management and supporting differentiated business needs. As of the end of the reporting period, the company’s margin trading balance was RMB 37.84B, an increase of 37.79% from the previous year, with a market share of 1.49%, and an average maintenance margin ratio of 290.79%.

“Flexible risk control” in margin trading

It is worth noting that the setting of risk control lines like the “Immediate Close-Out Line” by brokerages is a result of industry in-depth exploration of “flexible risk control” over the past two years.

Our understanding is that the 130% close-out line has always been a standard clause in margin trading contracts. However, during the sharp decline in the A-share market in 2024, regulators advocated for brokerages and investors to fully negotiate and temporarily suspend forced liquidation for clients unable to replenish margins promptly. At that time, many brokerages modestly lowered the original 130% close-out line, but these adjustments were not without bottom lines; both parties would agree on a minimum risk control threshold, and if this bottom line was reached, the close-out process would still be triggered. Such adjustments required clients to proactively apply, with brokerages and clients signing supplementary contracts to replace the original close-out line, forming a compliant risk control basis.

Sources said that during the significant market fluctuations early in 2024, strictly enforcing the 130% close-out line across the board could have caused many investors to be unable to replenish margins in time, leading to concentrated liquidations and triggering a chain reaction of market risks. As a result, regulators required brokerages to maintain flexibility in close-out operations, emphasizing proactive communication and negotiation with clients.

There were also rumors at the time that brokerages’ classification evaluations or the total annual close-out amount relative to the average daily margin trading balance, as well as the absolute amount of close-outs, might be included in penalty scoring metrics. Although this rule was not ultimately implemented, industry practices since then have retained considerable flexibility in margin close-out handling.