Stabilizing market expectations: New short-term trading regulations take effect today

To further standardize short-term trading behavior in the securities market, clarify the criteria for identification, and draw the boundaries of regulatory oversight, the China Securities Regulatory Commission (CSRC) previously issued Certain Provisions on Regulation of Short-Term Trading (hereinafter referred to as the “Provisions”). The Provisions will come into force on April 7, 2026. Industry institutions note that the implementation of the Provisions will help stabilize market expectations and provide convenience for various professional institutional investors to participate in the market.

Short-term trading refers to the conduct of certain categories of investors (shareholders holding 5% or more of the shares of a listed company or a company listed on the National Equities Exchange and Quotations (NEEQ), as well as directors, supervisors, and senior management personnel of a listed company or a company listed on the NEEQ) who sell within six months after purchasing, or who buy again within six months after selling the securities of the same listed company or company listed on the NEEQ. Article 44 of the Securities Law of the People’s Republic of China sets out the short-term trading system, clearly stipulating that any profits from short-term trading belong to the company, and the board of directors of the company shall recover such profits. Article 189 also specifies the relevant penalties. In practical implementation, it is also necessary to further clarify core elements such as how to define an investor’s identity, how to identify the timing of buying and selling, and the calculation basis for shareholding. At the same time, certain specific circumstances, such as conversion of convertible corporate bonds (hereinafter referred to as “convertible bonds”), inheritance, donations, market-making business, etc., should be exempted during enforcement.

The Provisions contain 12 articles. The main content includes: clarifying the applicable subjects and the scope of securities. The Provisions state that where the investor has the status of a major shareholder, a director/supervisor/senior management (i.e., “directors, supervisors, and senior management”) at both the time of buying and selling, or has such status at the time of selling but not at the time of buying, the short-term trading system must be complied with. The Provisions define “other equity-type securities” to include depository receipts, bonds that can be exchanged, convertible bonds, etc., and further refine and specify regulatory requirements. Clarifying the standards for determining and calculating shareholding and the timing of transactions. The Provisions specify that the timing of buying and selling is the securities transfer registration date; the proportion of shares held by major shareholders is calculated by aggregating shares of the same listed or NEEQ-listed company issued both domestically and abroad; and the number of securities held by foreign investors through different channels shall be aggregated as well, with alignment to relevant provisions.

The Provisions also clarify the circumstances under which exemption applies. It clearly lists 13 exemption scenarios, including conversion of preferred shares, ETF subscription and redemption, grants, registrations, and exercise of equity incentives, judicial compulsory enforcement, market-making transactions, and buyback ordered in cases of fraudulent issuance, to support market development and regulatory needs. At the same time, it is specified that situations involving the pursuit of illegal benefits by taking advantage of information advantages, etc., will not be exempted. For cases where securities are managed by professional institutions and separate securities accounts are opened independently for each product or portfolio, shareholding will be calculated separately per product or per portfolio for “one account through one code” accounts, including domestic and foreign public offering mutual funds, national social security funds, basic pension insurance funds, annuity funds, insurance funds, collective private asset management products managed by securities and futures fund management institutions, and private securities investment funds that meet regulatory requirements, etc., to facilitate transactions, promote opening up to the outside world, and help medium- to long-term capital enter the market. At the same time, it is clarified that if the above products or portfolios cannot achieve independent and standardized operation, or if there are circumstances such as conflicts of interest, or violations of laws and regulations, separate calculation will not be applied.

Industry insiders generally believe that the issuance of the Provisions will help stabilize market expectations and improve transaction convenience. China Securities JianTou Securities states that the Provisions reflect the regulatory authorities’ approach to stabilizing market expectations and facilitating compliant trading by further refining rules while staying firmly within the compliance bottom line. The implementation of the Provisions will help reduce institutional compliance costs for medium- to long-term funds entering the market, providing convenience for various professional institutional investors to participate in the market. Clearer rules will reduce compliance concerns among market participants arising from ambiguity in identification standards, and avoid inadvertent violations triggered by differences in understanding. Implementing separate shareholding calculation for cases where securities accounts are opened separately for each product or portfolio managed by professional institutions solves the operational difficulty that previously arose when institutional funds’ trading across products could potentially trigger short-term trading restrictions. It provides institutional convenience for long-term funds such as social security funds and pension funds to participate in the market.

(Source: Economic Information Daily)