Securities Lending and Borrowing Will Not Be Exempted! New Regulations on Short-Term Trading Supervision Released—How Much Will They Impact? The Latest Analysis Is Here

Source: Securities Times Net Author: Liu Yiwen

Recently, the CSRC has officially released certain regulations on short-term trading supervision (hereinafter referred to as the “Regulations”). The Regulations will officially come into effect on April 7, 2026. As supporting rules to Article 44 of the Securities Law, the Regulations systematically clarify the criteria for recognizing short-term trading, exempting circumstances, and supervisory and regulatory requirements. They represent an important institutional improvement in the field of trading supervision and regulation in the capital markets.

“For ordinary investors, the new rules mean that the market’s game rules will be fairer and more transparent. Those attempts to engage in insider trading and short-term speculation by exploiting unclear gray areas will face tighter constraints, while long-term investments based on fundamentals will receive a better institutional environment.” Jiangsu Shijitongren Law Firm stated.

Supervisory philosophy upgrade

It is understood that, compared with the draft for comments released by the CSRC on July 21, 2023—certain regulations on improving the supervision of specific short-term trades (draft for comments)—the final version, while maintaining strict supervision, significantly enhances the certainty and operability of the rules. It has fully absorbed market feedback on supporting institutionalized investing and has been substantially optimized.

Jiangsu Shijitongren Law Firm believes that the issuance of the Regulations is not only a patch at the technical level, but also an upgrade of the supervisory philosophy.

First, the rules are more transparent and stable. Clearly defined red lines and exemption lists give controlling shareholders of listed companies, directors, supervisors, senior management, and institutional investors stable expectations regarding their own trading conduct, reducing the risk of “stepping into a trap.”

Second, support for the real economy and market innovation. Exemptions for ETF creation/redemption, and conversion/redemption related businesses for convertible bonds, in practice support innovative applications of capital market instruments and keep corporate financing channels open.

Finally, guiding value investing. By facilitating the operations of long-term funds such as social security, annuities, foreign capital, and others, regulators are guiding the market away from excessive arbitrage spreads and toward paying attention to the long-term value of enterprise allocation. This has far-reaching significance for the high-quality development of the capital markets.

Dacheng Law Firm believes that, as an important supporting rule following the revision of the Securities Law, the issuance of the Regulations signals that China’s capital market has entered a new stage—more refined, systematic, and international—in the field of short-term trading supervision. In the future, compliance is not a “constraint,” but the “guardrail” that helps market participants move forward steadily. Against the backdrop of increasingly clear rules and increasingly refined supervision, only by internalizing compliance awareness into the governance foundation can listed companies, directors, supervisors, senior management, and professional institutions go far and steadily ride the wave of capital market development.

Parent-child accounts included in supervision

The Regulations clearly define the applicable subjects for short-term trading and the categories of securities involved.

Regarding applicable subjects, Article 8 of the Regulations clarifies that, in determining short-term trading, the securities held by the directors, supervisors, senior management, and natural-person shareholders involved include those held by their spouses, parents, and children, as well as those held by using others’ accounts.

Dacheng Law Firm stated that this means the “key few” must not only manage their own securities properly, but also strengthen the management of securities accounts of family members, avoiding violations caused by accidental or improper actions by close relatives. For securities held by the spouse, parents, or children of certain identity investors, the Regulations clearly state that they are unconditionally deemed to be held by the investor themselves based on the identity relationship. For securities held by other third parties that do not have a close family relationship, however, they must constitute “securities held by using another person’s account” to be aggregated and calculated. This will create significant difficulties in evidence collection when the two parties concerned coordinated in advance, posing challenges to securities administrative law enforcement.

It should be noted that the Regulations also clearly state that even if an investor does not have a specific identity at the time of purchase, but has one at the time of sale (for example, by increasing holdings to become a controlling shareholder), its trading conduct must also comply with the short-term trading system.

Scope of securities

In terms of the scope of securities, in addition to traditional stocks, the Regulations include “other securities with equity characteristics” under supervision, specifically including depositary receipts, exchangeable corporate bonds (exchangeable bonds), and convertible corporate bonds (convertible bonds), among others. Jiangsu Shijitongren Law Firm believes that this means that short-term arbitrage activities using these derivative instruments are also subject to the “six-month reverse trading” prohibition.

Securities lending via securities lending transactions will not be treated as an exemption

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

First are business system design categories, including conversion/redemption related actions for preferred shares, conversion/redemption for convertible bonds/exchangeable bonds, ETF creation/redemption, exercising equity incentives, and market maker quoting obligation actions, etc. Second are non-trading factor categories, including judicial compulsory enforcement, inheritance, donations, free transfer of state-owned shares, and so on. Lastly are supervisory equalization categories, including orders to repurchase/rebuy shares due to violations of reduction of share holdings, and transactions required to maintain financial stability.

It is understood that in the 2023 draft for comments, “conducting securities lending transactions in accordance with the trial measures for supervision and management of securities lending transactions, and lending and returning stocks or other securities with equity characteristics” was included as an exception, but this exception clause was deleted in the new rules of 2026.

Jia Yuan Law Firm stated that this change may be due to the fact that, in practice, some controlling shareholders of listed companies may use securities lending transactions as a workaround to reduce holdings indirectly. They lend their shares via securities lending transactions to effectively realize the “temporary transfer” of shares. Out of caution, when determining whether a transaction constitutes short-term trading, transactions involving securities lending should also be treated as “sales.”

The new rules of 2026 explicitly provide that buy-in actions resulting from the CSRC’s order to repurchase or to repurchase shares due to violations of reduced share holdings, or from a violating subject’s voluntary repurchase of shares after violations of reduced share holdings, do not trigger short-term trading. At the same time, a legal exemption for transactions made to address major financial risks and maintain financial stability was added. Jia Yuan Law Firm said that the above exemption circumstances establish a logical closed loop of “violating reduction of share holdings—ordered repurchase.” In the past, when shareholders were ordered to repurchase, they may have worried that the repurchase itself could again constitute short-term trading; the new rule for 2026 has completely eliminated this compliance paradox.

Introducing long-term capital

To facilitate the operations of professional institutional investors and to attract more mid- and long-term funds into the market, the Regulations optimize the method for calculating institutional product shareholdings.

For domestically and overseas professional institutional investors established in accordance with law and operating independently (such as public funds, social security funds, insurance funds, private securities investment funds that meet the conditions, etc.), it is allowed to calculate the number of shareholdings separately based on a product or an “one-code” account for each portfolio. Jiangsu Shijitongren Law Firm stated that this means that transactions among different fund products will not be aggregated and calculated together, thereby avoiding compliance concerns caused by the large number of products under a single manager, and greatly improving trading convenience.

Zhao Ran, a non-banking analyst at Citic Securities Investment Banking, said that separately calculating shareholdings in cases where securities accounts are opened separately by product or portfolio and managed by professional institutions addresses the operational difficulty under the previous regime whereby institutional funds could trigger short-term trading restrictions due to transactions among products. This provides institutional convenience for long-term funds such as social security funds and pension funds to participate in the market. At the same time, while defining exemption circumstances, it also sets negative provisions such as “seeking illegal benefits by taking advantage of information advantages,” reflecting the concept of combining prudent supervision with encouragement of compliance. This will help achieve a dynamic balance between facilitating market transactions and preventing illegal and non-compliant conduct.