I. Definition of Margin Account Pledge

Margin account pledge is an emerging form of guarantee in the field of financial guarantees. When first introduced, it was generally used as a supplement to traditional guarantee methods for corporate financing of major projects. This new type of guarantee can effectively reduce the credit risk of commercial banks and has many advantages that traditional guarantee methods do not possess, thus being highly favored in financial practice. Since the basic law lacks direct provisions on margin account pledge, judicial practice usually invokes Article 85 of the Judicial Interpretation of the Guaranty Law to adjudicate relevant cases. However, this provision misinterprets the true nature of margin account pledge and itself has the problem of ambiguous wording, leading to frequent occurrences of different judgments for similar cases.

There is no clear legal definition of what exactly a margin account pledge is. From the perspective of relevant scholars' theories, the generally recognized definition is: to secure the performance of a debt, the debtor or a third party opens a margin account with the bank, and agrees to deposit funds in the account as margin. When the debtor fails to perform the debt upon maturity, the creditor bank deducts the corresponding amount from the margin account for priority compensation in accordance with the agreement.

II. Legal Nature of Margin Account Pledge

In practice, there are a large number of cases related to margin account pledge, and the focus of disputes in their trial is mostly whether the creditor bank has the pledge right to the funds in the involved account. If the pledge relationship claimed by the bank is established, it can use the priority of compensation of the pledge right to resist the court's enforcement; if not, the special account will be no different from a general savings account, and the court can enforce the deduction of funds in the account in accordance with the law. Therefore, to resolve the focal issues of cases related to margin account pledge, it is particularly important to correctly determine its prerequisite—the legal nature of margin account pledge.

1. The "Monetary Pledge Theory" is Against Legal Principles

The viewpoint represented by Judge Cao Shibing, who participated in the drafting of the Judicial Interpretation of the Guaranty Law, holds that literally, the subject matter of margin account pledge is the bank account where the margin is deposited, but the account itself, as a carrier, has no actual value, which violates the essence of security interest as a value right. The essence of margin account pledge is to take the funds with actual value and exchangeable in the account as the subject matter of the pledge, which is a special type of chattel pledge—monetary pledge. Since Article 85 of the Judicial Interpretation of the Guaranty Law places margin account pledge in the "Chattel Pledge" section, the "monetary pledge theory" has become the mainstream viewpoint in China on the determination of the nature of margin account pledge.

As we all know, the pledgor has the right to dispose of the pledged subject matter. If the monetary pledge theory regards the currency in the margin account as the pledged subject matter, a basic premise must be met: the pledgor has the right to dispose of the currency in the account. However, as a special kind of thing, currency has a high degree of liquidity, and in terms of its ownership, the principle of "consistency of ownership and possession" should be upheld, that is, "the possessor of currency is the owner of the currency, and the owner of the currency must be the possessor of the currency." After a depositor deposits currency into a bank, he loses the ownership of the currency due to the transfer of possession. Therefore, the prevailing view that regards margin account pledge as "monetary pledge" lacks legal basis and is open to question.

2. The "Right Pledge Theory" Conforms to the Trend

The viewpoint represented by Cen Yayan holds that margin account pledge takes the right to claim payment of funds in the account as the subject matter of the pledge, and the right to claim payment refers to the creditor's right to request the bank to pay the funds in the account, so it should be identified as a right pledge. According to the principle of "consistency of ownership and possession", when a customer deposits funds into a bank account, he loses the ownership of the funds and thus obtains the creditor's right to require the bank to pay principal and interest. Similarly, when the pledgor of a margin account pledge deposits margin into a special bank account, he has the right to claim payment from the bank. The subject matter of pledge includes chattels and rights, where the rights refer to transferable property rights owned by the pledgor, including general creditor's rights, securities creditor's rights represented by negotiable securities, equity rights represented by stocks or shares, and intellectual property rights. The right to claim payment from the bank enjoyed by the pledgor of a margin account pledge is a contractual debt, belonging to a general creditor's right, and can naturally become the subject matter of pledge.

Therefore, the author believes that the subject matter of margin account pledge is the right to claim payment from the bank represented by the special margin account, which is a kind of right pledge. By analyzing the similarities and differences between margin account pledge, deposit certificate pledge and accounts receivable pledge, it can be found that when accounts receivable pledge exercises the pledge right by adopting the specific operation of "the creditor bank designates an account as the accounts receivable collection account", all three use "funds in the bank account" as the guarantee for the creditor's right, and there is no difference in the legal structure of their external forms. The biggest difference among the three is that the law explicitly incorporates these similar concepts into the scope of right pledge, so the subject matter of pledge and the method of public notification of the pledge right can find legal basis. However, the difference of whether it is explicitly stipulated by law is not enough to affect the determination of the legal nature of margin account pledge in legal theory, and the similarity of their legal structures just confirms that margin account pledge as a kind of right pledge should be supported by law.

Looking at the legislation of various countries in the world, most of them also treat account pledge as a right pledge. In the United Kingdom, one of the countries where the banking industry emerged earliest, some scholars limit property that can be pledged generally to chattels and intangible property with right certificates. For purely intangible property, such as bank account balances, it is the customer's right to claim payment of account deposits from the bank. To secure the financing obtained from the debtor, the customer can pledge his bank deposit account to the debtor. The United States introduced account pledge in the Uniform Commercial Code in 1999. In its view, an account is a carrier of intangible money, and the pledge of deposits is regarded as the pledge of accounts, so this kind of pledge is a kind of "intangible chattel pledge". The United States does not distinguish between chattel pledge and right pledge, and their so-called "intangible chattel pledge" corresponds to the right pledge in China. In the civil law system, such as Germany, the "General Terms and Conditions" formulated by the banking industry stipulate that all creditor's rights of the customer shall be pledged to the bank, and the customer is always in the position of a pledgor, and the most extensive application of right pledge is the pledge right obtained by the bank on the customer's rights against the bank. When a customer hands over his passbook to his deposit bank as a pledge, the bank obtains a pledge right on its own debt. In France, the French Civil Code divides real security into "pledge" and "nantissement", which are used for "tangible chattels" and "intangible chattels" respectively. The "nantissement" of "intangible chattels" corresponds to the "right pledge" in China. According to Article 2306 of the French Civil Code under "Pledge of Intangible Chattels" on "Account Pledge", it can be found that the French Civil Code regards account pledge as "nantissement of intangible chattels", i.e., "right pledge" in China. Accordingly, margin account pledge, as a form of account pledge, naturally has the same legal nature as account pledge—right pledge.

Conclusion

In summary, margin account pledge is a kind of right pledge, which is not only supported by legal principles, but also can obtain the support of domestic legislation, and conforms to the trend of legislation in various countries around the world. Since the margin account represents the pledgor's right to claim payment from the bank, which belongs to a general creditor's right, more specifically, the legal nature of margin account pledge is creditor's right pledge, rather than monetary pledge.

References

1. Cao Shibing: Solution and Prospect of Various Guarantee Issues in China, Beijing: China Legal Publishing House, 2001 Edition.
2. American Law Institute, National Conference of Commissioners on Uniform State Laws (eds.): Uniform Commercial Code and Its Official Comments, Volume 3, Translated by Gao Shengping, Beijing: China Renmin University Press, 2006 Edition.
3. Shen Daming: Security Law of France and Germany, Beijing: China Legal Publishing House, 2000 Edition.
4. Li Shigang: Reform of French Security Law, Beijing: Law Press, 2011 Edition.
5. Cen Yayan: "A Brief Analysis of the Nature of Margin Guarantee", Journal of Shanghai College of Finance and Banking, Issue , 2000.
6. Luo Xiaohong: "Research on Legal Issues of Account Pledge", Law Science Magazine, Issue 4, 2008.
7. Dong Cuixiang: "Outline of Account Pledge", Legal Forum, Volume 21, Issue 5, 2006.
8. Zhao Yiping: "On Legal Issues in Account Pledge", People's Judicature, Issue 8, 2005.