On March 6, 2026, after nearly three years soliciting comments, the China Securities Regulatory Commission (CSRC) promulgated the Provisions on the Regulation of Short Swing Trading (the “Short Swing Profit Rules”, or the “SSPR”), which will come into effect on April 7, 2026.
As the implementing rules for Article 44 of the Securities Law (amended in 2019) governing short swing trading, the SSPR introduce notable developments in three main aspects: (i) clarifying the scope of application of short swing profit rules and the methodology for calculating shareholdings, thereby enhancing regulatory certainty and improving the operability of the regime; (ii) specifying the exemption circumstances in which the short swing profit rules do not apply, pursuant to the authorization under the Securities Law, thereby refining the regulatory framework in light of evolving market practices; and (iii) providing a regulatory basis for calculating shareholdings independently for products or portfolios managed by certain professional institutional investors, which facilitates long-term investments in China’s capital markets by both domestic and overseas institutional investors.
Below is a summary of the key provisions of the SSPR.
I. Scope of Application
1. Persons subject to the SSPR
Under Article 44 of the Securities Law, where a shareholder holding 5% or more of the shares of a listed company or a company listed on the National Equities Exchange and Quotations (NEEQ), or any director, supervisor or senior management personnel of such company sells the shares of such company or other equity-type securities within six months after purchasing them, or repurchases such shares or securities within six months after selling them, any profits derived therefrom shall be returned to the company.
Consistent with Article 44 of the Securities Law, the SSPR state that the short swing profit rules apply to shareholders holding 5% or more of the shares of a listed company or a company listed on the NEEQ, as well as the directors, supervisors and senior management of such companies (collectively, the “Investors with Specific Status”). When determining whether the 5% threshold is reached, both domestic and overseas shares issued by the same listed company (such as A shares, B shares and H shares) shall be aggregated.
The SSPR further clarify that, in calculating the securities held by directors, supervisors, senior management personnel or natural person shareholders, securities held by their spouses, parents and children, as well as securities held through accounts owned by other persons for their own benefit, shall be included in their holdings.
For institutional investors, although the SSPR do not state that securities held by an institutional investor through accounts of other persons shall be deemed to be held by such institutional investor, we believe that the CSRC may apply a substance-over-form principle when determining the shareholding ownership. Accordingly, where an institutional investor substantially obtains the voting rights or control over the underlying securities through arrangements such as total return swap, the relevant securities may still be attributed to such investor.
With respect to the scope of persons subject to the short swing profit rules, the SSPR apply not only to those who possess the abovementioned status both at the time of purchase and sale, but also to those who do not possess such status at the time of purchase but acquired it prior to the sale.
2. Scope of Securities
Article 44 of the Securities Law specifies that the short swing profit rules apply to shares or other equity-type securities. The SSPR further clarify that the securities include shares, depositary receipts, exchangeable corporate bonds, convertible corporate bonds, and other securities with the nature of equity.
II. Determination Timing and Calculation Standards
1.Timing for Determining Securities Purchases and Sales
The Consultation Draft of Certain Provisions on Improving the Regulation of Short Swing Trading issued by the CSRC on July 21, 2023 (the “Consultation Draft”) provided separate rules for determining the timing of purchases and sales based on the type of transaction involved, including auction trading, block trading, stock transfers by agreement and judicial auctions. Article 5 of the SSPR adopts a unified approach whereby the timing of the purchase or sale shall generally be determined based on the date of the registration of the transfer of the securities, and where any laws or administrative regulations provide otherwise, those provisions shall prevail, thereby ensuring consistency with other applicable regulatory regimes.
2.Separate Calculation for Different Types of Securities
Article 7 of the SSPR provides that, for the purpose of calculating involved securities, the holdings of different categories of securities, such as shares, depositary receipts, exchangeable bonds and convertible bonds, shall be calculated separately and shall not be aggregated across categories. For example, where an Investor with Specific Status purchases shares but sells convertible bonds within six months, such transactions would not constitute short swing trading.
3. Aggregation of Shares Issued by the Same Company
The SSPR clarify that a shareholder holding 5% or more of the shares of a listed company (a “major shareholder”) refers to a shareholder whose aggregate shareholding of all shares issued by the same company, whether domestically or overseas, reaches 5% or more.
When determining whether an investor qualifies as a major shareholder, the investor’s holdings of shares issued by the same company across domestic and overseas markets must be aggregated.
4. HKSCC Nominee Holdings Reaching 5% under Stock Connect Not Treated as a Major Shareholder
Under the Stock Connect scheme, shares purchased by investors through Shanghai-Hong Kong Stock Connect and Shenzhen-Hong Kong Stock Connect shall be registered in the name of Hong Kong Securities Clearing Company Limited (HKSCC), and investors are legally entitled to the rights and interests in these shares. HKSCC shall open a nominee holder account with the China Securities Depository and Clearing Corporation Limited to record the balance of all shares held under its name as a nominee holder.
Given that HKSCC, as a nominee holder, only holds the shares on behalf of the investors and does not participate in the trading and investment decision-making, nor does it enjoy the rights and interests in the shares, the Shanghai Stock Exchange and the Shenzhen Stock Exchange have specified in their implementation rules that information disclosure rules on changes of equity holdings shall not apply to HKSCC, when changes in equity holdings reach the disclosure threshold. The SSPR further clarify that where HKSCC holds 5% or more of the shares of a listed company as a nominee holder, it shall not be regarded as a major shareholder.
5. Aggregation of Securities Held by the Same Overseas Investor through Multiple Channels
Under the SSPR, an overseas investor shall aggregate the securities of the same listed company or NEEQ-listed company held through different channels, including QFII, RQFII, foreign strategic investment and the Stock Connect schemes.
This means that, for the purpose of determining shareholding ratios in relation to short swing profit rules, securities held by the same overseas investor through different channels shall be aggregated regardless of the channel or the account name through which the securities are held. In our view, the CSRC may apply the substance-over-form principle to identify the same overseas investor.
6. Calculation of Profits
The CSRC has indicated that it will work with the securities exchanges to ensure the effective implementation of the SSPR and continue to optimize the regulatory framework governing short swing trading. We expect that the CSRC will further guide the securities exchanges to refine detailed rules regarding the calculation of profits derived from short swing trading.
III. Exemptions
Article 6 of the SSPR sets out 13 circumstances in which exemptions from the short swing profit rules may apply. These circumstances mainly include:
(i) Transactions associated with a particular product structure or business mechanism, with clear market expectations on its occurrence as well as regulatory exemption, such as conversion of preferred shares, conversion/exchange, redemption or resale of convertible bonds or exchangeable bonds, subscription, purchase or redemption of ETFs, equity incentive arrangements and market-making activities.
(ii) Changes in shareholding resulting from objective non-trading events, such as judicial enforcement, inheritance, donation or gratuitous transfer of state-owned shares.
(iii) Transactions conducted in accordance with regulatory provisions or to address significant financial risks and maintain financial stability in accordance with laws and regulations, including mandatory share repurchases ordered in case of fraudulent issuance or unlawful share reduction.
(iv) Other circumstances prescribed by the CSRC.
It should be noted that Article 6 of the SSPR further provides that where any of the above circumstances involves seeking unlawful benefits through the use of information advantages or other improper means, no exemption shall be granted.
IV. Disaggregation of Shareholdings for Qualified Products or Portfolios
With respect to the following categories of circumstances where securities accounts are opened separately for each product or portfolio under the management of professional institutions, the SSPR allow shareholdings to be calculated separately based on the ‘Yi-Ma-Tong’ account allocated to each product or portfolio:
(i) Domestic public funds, the National Social Security Fund, basic pension insurance funds, enterprise annuity funds and insurance funds.
(ii) Collective private asset management products managed by securities and futures operating institutions or public fund management institutions, as well as private securities investment funds that meet certain regulatory requirements.
(iii) Overseas public funds participating in the domestic securities trading through the QFI scheme or the Stock Connect scheme, provided that the northbound Stock Connect shareholding information of the relevant public fund products is duly reported.
However, where such products or portfolios are subject to decision-making by the same manager or are actually controlled by the same investor, and therefore cannot operate independently in a compliant manner, or where conflicts of interest or regulatory violations arise, disaggregation will not be permitted.
It is noteworthy that currently overseas private funds or separately managed accounts (SMAs) do not enjoy the same treatment as overseas public funds. Accordingly, multiple overseas private funds managed by the same manager or multiple SMAs actually controlled by the same investor must aggregate their shareholdings.
Compared with the Consultation Draft, the SSPR remove the relatively complex prior approval mechanism that was previously proposed. In particular, overseas public fund managers are no longer required to apply to the CSRC or the relevant securities exchange for approval to calculate shareholdings on a product basis. Instead, overseas public funds that open securities accounts under the QFII/RQFII scheme or obtain a Broker-to-Client Assigned Number (BCAN) under the Stock Connect scheme are only required to report their shareholding positions to the relevant securities exchange on a monthly basis. This change not only resolves the inconsistency between domestic and overseas regulatory treatment but also provides convenience for the operations of overseas public funds.
V. Legal Consequences of Violations
Where Investors with Specific Status (including overseas Investors with Specific Status) violate the short swing profit rules, the CSRC may impose regulatory measures or administrative penalties in accordance with the Securities Law and other applicable provisions.
In addition, where an investor voluntarily reports a violation that has not yet been discovered by the CSRC, or promptly returns all profits obtained from short swing trading to the relevant listed company or NEEQ-listed company, the CSRC may impose a lighter penalty, mitigate the penalty or even decide not to impose a penalty on such investor.
Our Observations
The promulgation of the SSPR further refines the regulatory framework governing short swing trading and clarifies the regulatory standards. It enhances the operability of the short swing profit rules and contributes to the high-quality development of China’s capital markets.
