The new regulations for A-shares take effect today! Regarding short-term trading, what impact does this have on individual investors?

Ask AI · How do the new short-term trading regulations prevent insider information abuse?

Today (April 7), the China Securities Regulatory Commission implemented the “Several Regulations on Short-term Trading Supervision” (hereinafter referred to as “Regulations”). Based on a systematic review of domestic and international legislation, judicial practices, and regulatory experiences, the Regulations respond to market concerns and further clarify regulatory arrangements for major shareholders and senior executives regarding short-term trading. What impact do the Regulations have on individual investors? Will ordinary investors be restricted from swing trading or buying and selling stocks? Considering various concerns, a reporter from the Financial Times has summarized the key points.

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What is short-term trading as described in the Regulations?

The Regulations define short-term trading as the behavior of specific identity investors selling within six months of purchase, or buying the same listed company or securities of a company listed on the National Equities Exchange and Quotations (NEEQ, “New Third Board”) within six months of selling, when trading on securities exchanges approved by the State Council.

The term “specific identity investors” refers to shareholders holding more than 5% of the shares of a listed company or NEEQ-listed company, as well as directors, supervisors, and senior management of the listed or NEEQ-listed companies.

The core purpose of establishing strict short-term trading supervision is to prevent major shareholders or senior executives of listed companies from exploiting inside information that ordinary investors cannot access to trade ahead for profit, thereby maintaining market fairness.

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Q

Will individual investors be restricted?

The Regulations target the “key minority” of listed companies, and short-term trading refers to the behavior of the aforementioned specific identity investors selling within six months of purchase or buying the same listed or NEEQ-listed company’s securities within six months of selling.

Major shareholders holding more than 5% of shares in listed companies and NEEQ-listed companies is a very high threshold, almost impossible for ordinary individual investors to reach. Therefore, for most ordinary individual investors, daily stock trading is completely unaffected by these regulations.

In addition, the Regulations explicitly include spouses, parents, children, and other close relatives’ accounts of the above two types of entities in the combined calculation scope to prevent evasion through third-party accounts. However, this requirement is also unrelated to ordinary individual investors.

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What are the main contents of the Regulations?

The Regulations consist of twelve articles, mainly including:

First, clarifying the applicable subjects and scope of securities types. It stipulates that both the purchase and sale must involve entities with the status of major shareholders or senior executives, and that transactions where such status is acquired after the purchase or before the sale also need to comply with short-term trading rules. It specifies that “other securities with equity characteristics,” such as depositary receipts, convertible bonds, and exchangeable bonds, are included, with detailed regulatory requirements.

Second, defining the standards for identifying and calculating shareholding and transaction timing. The purchase and sale timing is based on the securities transfer registration date. The major shareholder’s shareholding ratio is calculated by combining the shares issued by the same listed or NEEQ-listed company domestically and abroad, and holdings by overseas investors through different channels are aggregated, aligning with relevant regulations.

Third, clarifying exemption scenarios. Based on the Securities Law and regulatory practices, it specifies 13 exemption cases, including preferred stock conversion, ETF subscription and redemption, equity incentive grants, registration, and exercise, judicial enforcement, market-making transactions, and forced repurchase of fraudulent issuances, supporting market development and regulatory needs. It also states that if such scenarios involve exploiting information advantages for illegal gains, they are not exempt.

Fourth, for cases managed by professional institutions and accounts opened separately for products or portfolios, shareholding is calculated separately for each product or portfolio account, including domestic and foreign public funds, social security funds, basic pension funds, annuity funds, insurance funds, collective private asset management products managed by securities and futures firms, and compliant private equity funds, to facilitate trading, promote opening-up, and attract medium- and long-term funds into the market. It also clarifies that if these products or portfolios cannot operate independently or involve conflicts of interest, illegal activities, etc., they will not be calculated separately.

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What are the exemption scenarios specified in the Regulations?

The Regulations specify 13 exemption scenarios, mainly covering three categories:

First, based on product or business system design, where market expectations for related business processes are clear and support business development, such as preferred stock conversions, convertible bond conversions, redemptions, buybacks, ETF subscriptions, and redemptions, equity incentive grants, registration, and exercise, and market-making activities.

Second, due to objective non-trading factors causing shareholding changes, such as judicial enforcement, inheritance, donations, and state-owned share transfers without compensation.

Third, transactions conducted in accordance with laws and regulations to address major financial risks and maintain financial stability, such as forced repurchases of fraudulent issuances and illegal reductions in holdings.

To prevent evasion of supervision through exemption scenarios, the Regulations specify that if such behaviors involve exploiting information advantages for illegal gains, they are not exempt.

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What impact do the Regulations have on the capital market?

The Regulations will bring three “benefits”:

First, clarifying regulatory requirements. By defining the scope of short-term trading restrictions and shareholding calculation methods, it helps further regulate the trading behaviors of major shareholders and senior executives, stabilizing market expectations.

Second, supporting market development. Based on the Securities Law, the Regulations specify exemption scenarios for short-term trading under controlled risk conditions, which is conducive to supporting related business growth and enhancing the system’s inclusiveness and adaptability.

Third, improving trading convenience. For products managed by compliant domestic and foreign professional institutional investors, the Regulations clarify that shareholding amounts are calculated per product or portfolio, which helps attract medium- and long-term funds, promote opening-up, and stimulate market vitality.

Source: Financial Times Client

Reporter: Yang Yi

Editor: Liu Nengjing