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 aspects: 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 some specific situations, such as convertible bonds (hereinafter referred to as “convertible bonds”) conversion, inheritance, donations, market-making activities, etc., which should be exempted during enforcement. As regulatory practice continues to enrich, this lays a solid foundation for improving the short-term trading system, helps further clarify regulatory requirements, and stabilizes market expectations.

“At the same time, it treats domestic and foreign investors equally, actively responds to foreign investment concerns, and, under lawful and compliant conditions, allows qualified foreign public funds to calculate their holdings by product or portfolio,” the CSRC said.

Both buying and selling involve the identities of major shareholders, directors, supervisors, and senior executives, or only one side does, the regulation still applies

In clarifying the scope of applicable subjects and securities, the Provisions include both parties who hold the identities of major shareholders, directors, supervisors, and senior executives at both the time of buying and selling, and those who do not hold such identities at purchase but do at sale.

Additionally, the scope of securities involved includes stocks, depositary receipts, exchangeable corporate bonds (hereinafter referred to as “exchangeable bonds”), convertible bonds, and other securities with equity characteristics, with detailed regulatory requirements.

Specifically, the Provisions state that “specific identity investors” refer to shareholders holding more than 5% of the shares of 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 identity investor sells securities within six months of purchase, or buys securities within six months after selling, the regulation applies. Investors who do not have such an identity at purchase but acquire it later, and then sell, are also subject to these rules.

The trading timing 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 timing of buying and selling is based on the securities transfer registration date.

2. The shareholding ratio of more than 5% held by major shareholders is calculated by combining the shares issued or listed and publicly transferred within the same listed company or New Third Board company, whether domestically or internationally.

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. “Under the Mainland-Hong Kong Stock Connect mechanism, if Hong Kong Central Clearing Company Limited holds more than 5% of the shares of a listed company solely as a nominee, it is not regarded as a shareholder holding more than 5%,” the Provisions state.

4. Securities involved in short-term trading are not combined across different varieties.

5. The same overseas investor should combine holdings through Qualified Foreign Institutional Investors (QFII), RMB Qualified Foreign Institutional Investors (RQFII), foreign strategic investors, and the Northbound trading under the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect mechanisms.

Exemption scenarios include convertible bond conversions, ETF subscriptions and redemptions, equity incentive grants, and related activities

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

1. Based on product or business system design, where market expectations are clear and support business development, such as convertible bond conversions, redemptions, repurchases, exchange of exchangeable bonds, ETF subscriptions and redemptions, equity incentive grants, registrations, and exercises, and market-making activities.

2. Changes in shareholding caused by 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 necessary 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 through information advantages, the Provisions clarify that any behavior involving the use of information to seek illegal benefits will not be exempted.

Qualified foreign public funds that meet the requirements are allowed to calculate holdings by product or portfolio

In terms of institutional arrangements, the Provisions state that for professional-managed entities that open securities accounts separately for each product or portfolio, holdings should be calculated separately for each 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 fund management institutions, and qualified private equity funds, to facilitate trading and promote opening-up and long-term capital entry.

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 fund management institutions, and qualified private securities investment funds.

3. Foreign public funds participating in domestic securities trading via QFII, RQFII, or the Stock Connect mechanisms, 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.

Facilitating market stability and improving 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 scope of applicable subjects and securities. To enforce the requirements of the Securities Law and facilitate practical enforcement, it is necessary to further clarify core elements such as investor identity, timing of buy and sell, and shareholding calculation standards.

“Second, it aligns with market development needs. In practice, some specific situations, such as convertible bond conversions, inheritance, donations, and market-making activities, should be exempted during enforcement,” the CSRC further explained. “In recent years, foreign markets have also applied exemptions for similar situations under the short-term trading system. The Securities Law also authorizes the CSRC to specify exemption scenarios.”

The CSRC pointed out that third, 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 stated that it adheres to: first, legal regulation; second, respecting practice by systematically reviewing judicial and regulatory practices, summarizing mature experiences, and forming normative systems; third, consistency domestically and internationally, treating domestic and foreign investors equally, and actively responding to foreign investment concerns.

“Prior to this, the Provisions were publicly consulted, with multiple rounds of discussions and research. Relevant opinions and suggestions have been fully incorporated or clarified. The support and positive feedback from various parties indicate that the Provisions will help stabilize market expectations and improve trading convenience,” the CSRC concluded.

(Source: The Paper)