New regulations for A-shares! Starting today, they are officially implemented! Regarding short-term trading

To implement the short-swing trading regulatory regime prescribed by the Securities Law, and to facilitate the entry of medium- and long-term capital into the market, the China Securities Regulatory Commission (CSRC) has formulated and issued the “Several Provisions on the Regulation of Short-Swing Trading” (hereinafter the “Provisions”), which shall take effect as of April 7, 2026.

Industry insiders believe that, for ordinary investors, the new rules mean the market’s game rules will be fairer and more transparent. Those attempts to use gray areas to engage in insider trading and short-term speculation will be subject to stricter constraints.

Further clarify short-swing trading regulatory arrangements for major shareholders and others

Based on a systematic review of domestic and international legislation, judicial practices, and regulatory practices, the Provisions respond to market concerns and further clarify the regulatory arrangements related to short-swing trading by major shareholders and directors, supervisors, and senior management (the “DGMs”). The Provisions consist of twelve articles, with main contents including multiple aspects.

First, they clarify the scope of applicable subjects and categories of securities. With respect to the subjects of short-swing trading, those that have the identity of a major shareholder or a DGM both at the time of purchase and at the time of sale, and those that do not have a specific identity at the time of purchase but do have such identity at the time of sale, are included within the scope of regulation. The Provisions also clarify that the relevant scope of securities includes stocks and depositary receipts, exchangeable corporate bonds (hereinafter “exchangeable bonds”), convertible bonds, and other equity-related securities.

Second, they clarify the recognition and calculation standards for holdings and transaction timing. In light of regulatory practice, a series of recognition and calculation standards are clarified, specifically including:

First, for the timing of purchase and sale, the securities transfer registration date shall be the criterion.

Second, for major shareholders holding more than 5% of equity, the shareholding ratio shall be calculated by aggregating shares that have been issued or listed and publicly transferred within and outside the territory of the same listed company or a company listed on the National Equities Exchange and Quotations (NEEQ).

Third, holdings exceeding 5% by Hong Kong Securities Clearing Company Limited acting as a nominee holder under the mutual market access mechanism are not recognized as holdings of major shareholders.

Fourth, securities involved in recognizing short-swing trading shall not be aggregated across different categories of securities for calculation.

Fifth, an eligible foreign investor shall aggregate the number of securities it holds through Qualified Foreign Institutional Investor (QFII), Renminbi Qualified Foreign Institutional Investor (RQFII), foreign strategic investors, and the Shanghai-Hong Kong and Shenzhen-Hong Kong Stock Connect mechanisms.

Next, the Provisions define exempt circumstances. They clarify 13 types of exemption circumstances, mainly covering three categories:

First, circumstances in which, based on the design of product or business rules, the market has clear expectations for the relevant business segments and support is needed for business development—such as conversion of preferred shares into shares, conversion, redemption, and repurchase of convertible bonds; conversion, redemption, and repurchase of exchangeable bonds; subscription, application, and redemption of ETFs; grant, registration, and exercise related to equity incentives; and market-making business, etc.

Second, circumstances where shareholding changes are caused by objective non-trading factors, such as judicial enforcement, inheritance, donation, and the free transfer of state-owned shares, etc.

Third, transaction conduct carried out in accordance with regulatory requirements or in order to respond to major financial risks and maintain financial stability, such as transactions like fraudulently issuing securities with an order to repurchase, or illegal reductions in holdings with an order to repurchase. To prevent the use of exempt circumstances to circumvent regulation, the Provisions clarify that if the above-mentioned conduct involves seeking illegal benefits by taking advantage of information advantages, it will not be exempted.

Lastly, they clarify the arrangements for the applicability to institutions. For three categories of situations in which professional institutions manage them and open securities accounts separately by product or by portfolio, the shareholdings shall be calculated separately for each account under the “one code for all accounts” (一码通) system by product or portfolio:

First, domestic public funds, the National Social Security Fund, the basic pension insurance fund, annuity funds, insurance funds, etc.

Second, pooled private asset management products managed by securities and futures fund management institutions, and private securities investment funds that meet regulatory requirements.

Third, overseas public funds that participate in domestic securities trading through QFII and the Stock Connect mechanisms, and report the Northbound shareholding information of the corresponding products as required. To prevent regulation from being circumvented by using this measure, the Provisions clarify that if the above products or portfolios cannot operate independently in a standardized manner, or if there are conflicts of interest, illegal or non-compliant conduct, or similar issues during trading, the number of securities holdings will not be calculated separately.

Securities lending and borrowing via securities lending (融券) shall not be an exempt circumstance

Article 6 of the Provisions adopts the form of a “white list of exemptions,” listing 13 scenarios that do not constitute short-swing trading, which are mainly divided into three major categories.

It is understood that, in the 2023 consultation draft, “carrying out securities lending and borrowing in accordance with the Trial Measures for the Supervision and Administration of Securities Lending and Borrowing business, and lending and returning stocks or other securities with equity-related nature” was included as an exception. However, in the 2026 new rules, this exception clause was deleted.

The Jiayuan Law Firm stated that this change may be due to the fact that, in practice, some listed-company shareholders reduce their holdings in disguise through the securities lending and borrowing business—i.e., they lend their holdings via securities lending and borrowing to effectively achieve a “temporary transfer” of shares. Out of prudence, when determining whether such securities lending and borrowing transactions constitute short-swing trading, the lending transaction should also be treated as a “sale.”

The 2026 new rules explicitly provide that purchase actions resulting from illegal reductions in holdings that are ordered to be repurchased or from repurchases demanded by the CSRC, or from the voluntary repurchase of illegally reduced holdings by the violating subject, do not trigger short-swing trading. Meanwhile, a new exemption is added for legally carried out transactions to respond to major financial risks and to maintain financial stability. The Jiayuan Law Firm said that the above exemption circumstances establish a closed logical loop of “illegal reduction of holdings—ordered repurchase.” Previously, shareholders who were ordered to repurchase might worry that the repurchase act itself could also constitute short-swing trading; the 2026 new rules completely eliminate this compliance paradox.

With regard to applicable subjects, Article 8 of the Provisions clarifies that the securities involved in the recognition of short-swing trading include the securities held by directors, supervisors, senior management personnel, and natural person shareholders, including those held by their spouses, parents, and children, as well as the securities held by using others’ accounts.

The Dacheng Law Firm stated that this means the “key minority” must not only manage their own securities accounts well but also strengthen the management of securities accounts of family members to avoid violations caused by mistaken operations by close relatives. Specifically, for securities held by the spouse, parents, and children of investors with particular identities, the Provisions clarify that they are unconditionally deemed to be held by the investor themselves based on the identity relationship. For securities held by other third parties who do not have a close-relative relationship, however, they must constitute “holding through others” in order to be aggregated and calculated. This will pose significant difficulties in evidence collection when the two parties may have colluded in advance, and it presents challenges to securities administrative enforcement.

Layout: Wang Lulul

Proofreading: Yao Yuan