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

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Source: Economic Information Daily

To further standardize short-term trading behaviors in the securities market, clarify the criteria for identification, and delineate regulatory boundaries, the China Securities Regulatory Commission (CSRC) previously issued the “Several Regulations on Short-term Trading Supervision” (hereinafter referred to as the “Regulations”), which will take effect from April 7, 2026. Industry institutions point out that the implementation of the “Regulations” will help stabilize market expectations and facilitate the participation of various professional institutional investors in the market.

Short-term trading refers to the behavior of specific investors (shareholders holding more than 5% of the shares in listed companies or New Third Board companies, as well as directors, supervisors, and senior managers of listed companies and New Third Board companies) who sell within six months of buying, or buy the same securities within six months after selling, in the same listed or New Third Board company. Article 44 of the “Securities Law of the People’s Republic of China” stipulates the short-term trading system, clarifying that profits from short-term trading belong to the company, and the company’s board of directors should recover these profits; Article 189 explicitly details related penalties. In practice, further clarification is needed on core elements such as investor identity, trade timing, and shareholding calculation standards; meanwhile, certain specific situations, such as convertible bonds (hereinafter referred to as “convertible bonds”) conversion, inheritance, donations, market-making activities, etc., should be exempted during enforcement.

The “Regulations” consist of twelve articles, mainly including: clarifying applicable subjects and scope of securities. It stipulates that both major shareholders and senior management involved in buying and selling, whether they possess or lack such status at the time of purchase or sale, must comply with the short-term trading regulations. It specifies that “other securities with equity characteristics” include depositary receipts, convertible bonds, and exchangeable bonds, with detailed regulatory requirements. It clarifies the standards for identifying and calculating shareholding and trading timing. The regulation states that the trading timing is the securities transfer registration date, with major shareholders’ shareholding ratios calculated by combining the shares issued by the same listed or listed company domestically and abroad, and securities held by overseas investors through different channels are also combined, aligning with relevant regulations.

The “Regulations” also clearly specify exemption scenarios. Thirteen exemption cases are outlined, including convertible bond conversions, ETF subscriptions and redemptions, equity incentive grants, registration, and exercise, judicial enforcement, market-making transactions, and mandatory buybacks due to fraudulent issuance, supporting market development and regulatory needs. Meanwhile, situations involving the use of information advantages for illegal gains, such as, will not be exempted. For cases managed by professional institutions and where securities accounts are opened separately for products or portfolios, holdings are calculated separately per product or portfolio via a unified account, including domestic and foreign public funds, social security funds, basic pension funds, annuity funds, insurance funds, collective private equity products managed by securities and futures firms, and compliant private equity securities funds, to facilitate trading and promote opening-up and long-term capital entry. If these products or portfolios cannot operate independently or involve conflicts of interest, illegal activities, etc., they will not be calculated separately.

Industry experts generally believe that the introduction of the “Regulations” will help stabilize market expectations and improve trading convenience. CITIC Securities states that the “Regulations” reflect the regulatory authorities’ approach of maintaining compliance bottom lines while refining rules to stabilize market expectations and facilitate compliant trading. The implementation of the “Regulations” will help reduce institutional costs for long-term capital entering the market and make participation easier for various professional institutional investors. Clarified rules will reduce compliance concerns caused by ambiguous identification standards and prevent unintentional violations due to misunderstandings. For cases managed by professional institutions with separate securities accounts for products or portfolios, holdings are calculated separately, solving operational difficulties where previous institutional funds might trigger short-term trading restrictions due to inter-product transactions, thus providing institutional convenience for long-term funds like social security and pension funds to participate in the market.