The new regulations on short-term trading by the China Securities Regulatory Commission take effect today

Today (April 7), the China Securities Regulatory Commission’s “Several Provisions on Regulation of Short-Swing Trading” has come into effect. The new rules further clarify the regulatory arrangements for short-swing trading by major shareholders holding more than 5% of shares and by directors, supervisors, and senior management personnel (i.e., directors, supervisors, and senior management). The core purpose is to prevent insiders from using information advantages to profit from short-swing trading and to uphold market fairness. The main contents of the “Provisions” include: First, clarifying the scope of applicable entities and the types of securities. If, at the time of buying and selling, a person has both the identity of a major shareholder or a director/supervisor/senior management personnel, and is not able to be exempted from short-swing trading rules under the relevant circumstances—specifically, if the person does not have such identity when buying but does when selling—then such person must comply with the short-swing trading system. The “other securities with equity characteristics” include depository receipts, convertible debt, convertible bonds, etc., and the regulatory requirements are further detailed and clarified. Second, clarifying the recognition and calculation standards for shareholdings and transaction timing. The provisions set the transaction time points as the securities’ transfer registration date. The major shareholders’ shareholding ratio is calculated by consolidating shares already issued by the same listed or over-the-counter company within and across domestic and overseas markets. The number of securities held through different channels by overseas investors is also consolidated for calculation, etc., ensuring alignment with related regulations. Third, clarifying exempt circumstances. Pursuant to the authorization of the Securities Law of the People’s Republic of China and in conjunction with regulatory practice, the provisions specify 13 exemption circumstances, including conversion of preference shares, ETF subscription and redemption, grants and registrations and exercise under equity incentives, judicial compulsory enforcement, market-making transactions, and orders for share buybacks due to fraudulent issuance. These are intended to support market development and meet regulatory needs. At the same time, it is also stipulated that, for relevant circumstances that involve seeking illegal benefits by taking advantage of information superiority, no exemption will be granted. (CCTV News)