Securities Lending and Borrowing Will Not Be Exempted! New Regulations on Short-term Trading Supervision Released – How Big Is the Impact? The Latest Analysis Is Here

Recently, the China Securities Regulatory Commission officially released the “Several Regulations on Short-Term Trading Supervision” (hereinafter referred to as the “Regulations”). The Regulations will come into effect on April 7, 2026. As a supporting rule for Article 44 of the Securities Law, the Regulations systematically clarify the standards for identifying short-term trading, exemption circumstances, and supervision and management requirements. They are an important addition to the regulatory framework of the capital market trading supervision.

“For ordinary investors, the new rules mean a fairer and more transparent market playing field. Behaviors that attempt to exploit gray areas for insider trading and short-term speculation will face stricter restrictions, while long-term investments based on fundamentals will enjoy a better institutional environment,” said Jiangsu Century Tongren Law Firm.

Upgraded Regulatory Philosophy

It is reported that compared to the previous “Draft Regulations on Improving the Supervision of Specific Short-Term Trading” issued by the CSRC on July 21, 2023, the official version maintains strict supervision while significantly enhancing the clarity and practicality of the rules. It fully incorporates market feedback supporting institutional investment and has been greatly optimized.

Jiangsu Century Tongren Law Firm believes that the release of the Regulations is not only a technical correction but also an upgrade in regulatory philosophy.

First, the rules are more transparent and stable. Clear red lines and exemption lists allow major shareholders of listed companies, directors, supervisors, senior management, and institutional investors to have stable expectations about their trading behaviors, reducing the risk of “getting caught off guard.”

Second, it supports the real economy and market innovation. Exemptions for ETF subscription/redemption, convertible bond conversion, and other business activities effectively promote innovative use of capital market tools and smooth corporate financing channels.

Finally, it guides value investing. By facilitating the operation of long-term funds such as social security, pensions, and foreign investment, regulators aim to shift the market focus from excessive arbitrage to long-term value allocation, which has profound significance for high-quality development of the capital market.

Dacheng Law Firm believes that as an important supporting rule following the revision of the Securities Law, the issuance of the Regulations marks a new stage of more refined, systematic, and internationalized regulation of short-term trading in China’s capital market. In the future, compliance will not be seen as “restraint” but as a “guardrail” for steady progress. With clearer rules and increasingly detailed supervision, listed companies, directors, supervisors, senior management, and professional institutions must internalize compliance awareness as a fundamental part of governance to navigate the wave of market development steadily and far.

Inclusion of Parent-Child Accounts in Supervision

The Regulations clearly define the applicable subjects and securities involved in short-term trading.

Regarding applicable subjects, Article 8 states that securities held by directors, supervisors, senior management, and natural person shareholders involved in short-term trading include securities held by their spouses, parents, children, and those held through others’ accounts.

Dacheng Law Firm notes that this means the “key minority” must not only manage their own accounts well but also strengthen family members’ securities account management to avoid violations caused by misoperations of close relatives. For securities held by spouses, parents, or children of specific investors, the Regulations explicitly treat them as unconditionally owned by the individual based on their relationship. For securities held by third parties without close kinship, they must constitute “using others’ holdings” to be combined, which can be challenging to prove if there is prior collusion, posing enforcement difficulties.

It is also noteworthy that the Regulations specify that even if an investor does not have a specific identity at the time of purchase, if they acquire such status later (e.g., becoming a major shareholder through increased holdings), their trading behavior must still comply with short-term trading rules.

In terms of securities scope, besides traditional stocks, the Regulations include “other securities with equity characteristics,” such as depositary receipts, exchangeable corporate bonds (exchange bonds), and convertible bonds. Jiangsu Century Tongren Law Firm believes this means that short-term arbitrage involving these derivative instruments is also subject to the “six-month reverse trading” ban.

Repurchase and Securities Lending Not Considered Exemptions

Article 6 of the Regulations adopts an “exemption list” that enumerates 13 circumstances not constituting short-term trading, mainly divided into three categories.

First are business system design scenarios, including convertible preferred stock conversions, convertible bond/exchangeable bond redemption, ETF subscription/redemption, stock incentive exercises, and market-making obligations. Second are non-trading factors, such as judicial enforcement, inheritance, donations, and state-owned share transfers without compensation. Third are regulatory stabilization measures, including mandated buybacks or repurchases of illegal reductions in holdings to maintain financial stability.

It is understood that in the 2023 draft for comments, “carrying out securities lending and return under the ‘Securities Lending Business Supervision and Management Trial Measures’” was listed as an exception. However, the 2026 new Regulations remove this clause.

Jia Yuan Law Firm suggests that this change may be due to practical issues where listed company shareholders use securities lending as a loophole for disguised share reduction—temporarily transferring shares through securities lending. Cautiously, when judging whether a transaction constitutes short-term trading, securities lending transactions should also be regarded as “selling.”

The 2026 Regulations explicitly state that buy-in behaviors resulting from CSRC orders for buybacks, mandated repurchases of illegal reductions, or voluntary repurchases of illegal holdings do not trigger short-term trading. Additionally, exemptions are added for transactions necessary to address major financial risks and maintain financial stability. Jia Yuan Law Firm notes that these exemptions establish a logical cycle of “illegal reduction—ordered buyback.” Previously, shareholders ordered to buy back might worry that the buyback itself would constitute short-term trading; the new rules eliminate this paradox.

Introduction of Long-Term Funds

To facilitate the operation of professional institutional investors and attract more medium- and long-term capital, the Regulations optimize the calculation method for institutional holdings.

For legally established, independently operated domestic and foreign professional institutional investors (such as public funds, social security funds, insurance funds, and qualifying private securities funds), it is permitted to calculate holdings separately based on a “one-code account” for each product or portfolio. Jiangsu Century Tongren Law Firm states this means that transactions between different fund products will not be combined, avoiding compliance issues caused by numerous products under a single manager and greatly improving trading convenience.

CITIC Securities non-bank analyst Zhao Ran says that implementing separate calculations for holdings managed by professional institutions and opened under individual product or portfolio accounts addresses previous operational difficulties where transactions could trigger short-term trading restrictions. This provides institutional investors like social security funds and pensions with regulatory convenience. Meanwhile, while clarifying exemption circumstances, the inclusion of negative clauses such as “using information advantages to seek illegal benefits” reflects a balanced approach of prudent supervision and encouraging compliance, helping to achieve a dynamic balance between facilitating market transactions and preventing violations.

(Original source: Securities Times)