New Short-Term Trading Regulations Released: Clarifies Standards for Holding Stocks and Trading Timing, with 13 Situations Exempted

The China Securities Regulatory Commission (CSRC) further clarifies regulatory arrangements concerning short-term trading by major shareholders, directors, supervisors, and senior executives.

On the evening of March 6, the CSRC announced that in order to implement the short-term trading supervision system stipulated by the Securities Law and facilitate the entry of medium- and long-term funds into the market, it has issued the “Provisions on the Supervision of Short-term Trading” (hereinafter referred to as the “Provisions”), which will take effect from April 7, 2026.

Overall, the full text consists of 12 articles, mainly covering four areas: first, clarifying the applicable subjects and securities scope; second, defining the standards for identifying and calculating shareholding and trading timing; third, specifying exemption scenarios; and fourth, clarifying arrangements for institutions.

Regarding the issuance of the Provisions, the CSRC stated that it is a response to market development needs. In practice, there are specific situations such as convertible bonds (CBs) conversion, inheritance, donations, market-making activities, etc., which should be exempted during enforcement. As regulatory practice continues to evolve, this will lay a solid foundation for improving the short-term trading system, help further clarify regulatory requirements, and stabilize market expectations.

“At the same time, we treat domestic and foreign investors equally and actively respond to foreign investment concerns. Under lawful and compliant conditions, qualified overseas public funds are allowed to calculate their holdings by product or portfolio,” the CSRC said.

Major shareholders, directors, supervisors, and senior executives must adhere to short-term trading regulations whether they are involved in buying or selling, regardless of their status at the time of the transaction.

In clarifying the applicable subjects and securities scope, the Provisions specify that for the subjects of short-term trading, those who hold the status of major shareholders, directors, supervisors, and senior executives both at the time of buying and selling, as well as those who do not hold specific statuses at the time of buying but do at the time of selling, are included within the regulation.

The scope of securities involved includes stocks, depositary receipts, exchangeable bonds (EBs), convertible bonds (CBs), and other securities with equity characteristics, with detailed regulatory requirements.

Specifically, the Provisions state that “specific status investors” refer to shareholders holding more than 5% of the shares in listed companies or companies listed on the New Third Board, as well as directors, supervisors, and senior management of these companies.

The Provisions further specify that if a specific status investor sells securities within six months of purchase, or buys securities within six months after selling, the regulation applies. Investors who do not have the specific status at purchase but acquire it before selling are also subject to the regulation.

The trading date is based on the securities transfer registration date.

In defining the standards for identifying and calculating shareholding and trading timing, the Provisions, based on regulatory practice, clarify a series of standards, mainly including five points:

1. The buy and sell timing is based on the securities transfer registration date.

2. The 5% shareholding threshold for major shareholders is calculated by aggregating the shares issued or listed and publicly tradable in both domestic and overseas markets for the same listed company or New Third Board company.

3. Under the Connect mechanism, holdings exceeding 5% held by Hong Kong Central Clearing Company Limited as a nominee are not recognized as major shareholders. “In the Mainland-Hong Kong Stock Connect mechanism, holdings by Hong Kong Central Clearing Company Limited as a nominee exceeding 5% are not regarded as shareholders holding more than 5%,” the Provisions state.

4. Securities involved in short-term trading are not to be combined across different types.

5. The same overseas investor should aggregate securities held through Qualified Foreign Institutional Investors (QFII), RMB QFII, foreign strategic investors, and the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect mechanisms.

Exemption scenarios include conversions of preferred shares, ETF subscriptions and redemptions, equity incentive grants, and other specified circumstances.

Regarding exemption scenarios, the Provisions specify 13 cases mainly covering three categories:

1. Designed by product or business systems, where market expectations are clear and support business development, such as preferred share conversions, CB conversions, redemptions, repurchases, exchange of exchangeable bonds, ETF subscriptions and redemptions, equity incentive grants, registrations, exercises, and market-making activities.

2. Changes due to objective non-trading factors, such as judicial enforcement, inheritance, donations, and state-owned share transfers without compensation.

3. Transactions conducted in accordance with regulations or to address major financial risks and maintain financial stability, such as mandatory buybacks of fraudulent issuance or forced repurchases of illegal share reductions.

To prevent abuse of exemptions for illegal gains, the Provisions clarify that any behavior involving information advantage or other illicit means to seek illegal benefits will not be exempted.

Qualified foreign public funds are allowed to calculate their holdings by product or portfolio.

In terms of institutional application, the Provisions state that for professional-managed entities with separate securities accounts for each product or portfolio, holdings should be calculated separately per account, including domestic and foreign public funds, national social security funds, basic pension funds, annuity funds, insurance funds, collective private asset management products managed by securities and futures firms, and compliant private equity funds, to facilitate trading and promote opening-up and long-term capital inflows.

Specifically, the Provisions specify that for three types of professionally managed, separately accounted products or portfolios, holdings are calculated separately:

1. Domestic public funds, national social security funds, basic pension funds, annuity funds, insurance funds, etc.

2. Collective private asset management products managed by securities and futures institutions, and compliant private equity funds.

3. Overseas public funds participating in domestic securities trading via QFII, RMB QFII, or Stock Connect, reporting their northbound holdings as required.

To prevent circumvention of regulation through this measure, the Provisions clarify that if these products or portfolios cannot operate independently or involve conflicts of interest, illegal activities, or other violations during trading, their holdings will not be calculated separately.

The issuance of the Provisions aims to stabilize market expectations and improve trading convenience.

Regarding the issuance of the Provisions, the CSRC stated that first, it is a measure to implement the Securities Law. Article 44 of the Securities Law stipulates the short-term trading system and improves the applicable subjects and securities scope. To enforce the requirements of the Securities Law and facilitate practical enforcement, it is necessary to further clarify core elements such as investor identity, trading timing, and shareholding calculation standards.

“Second, it responds to market development needs. In practice, there are specific situations such as CB conversions, inheritance, donations, and market-making activities that should be exempted during enforcement,” the CSRC further explained. “In recent years, foreign markets have also exempted similar situations from the short-term trading system in practice. The Securities Law also authorizes the CSRC to specify exemption scenarios.”

The CSRC pointed out that regulatory practice has been continuously enriched. In recent years, legislative, judicial, and regulatory agencies have accumulated experience, laying a solid foundation for improving the short-term trading system, which helps further clarify regulatory requirements and stabilize market expectations.

In drafting principles, the CSRC emphasized: first, rule of law; second, respect for practice—systematically reviewing judicial and regulatory practices, summarizing mature experiences from companies, institutions, and enforcement, and forming normative systems; third, consistency domestically and internationally—treating domestic and foreign investors equally and actively responding to foreign investment concerns.

“The Provisions have been publicly solicited for comments, with multiple rounds of consultations and research. Relevant opinions and suggestions have been fully incorporated or clarified. All parties have supported the issuance of the Provisions, with positive evaluations, believing it will help stabilize market expectations and improve trading convenience,” the CSRC concluded.

(Source: The Paper)