On October 19, 2026, the China Securities Regulatory Commission (CSRC) issued the Implementation Rules for Administrative Penalties on Non-Compliant Securities Transfers (the “Penalty Rules”), which will take effect on December 1, 2026.
Regarding non-compliant share reduction, the Opinions of the State Council on Strengthening Supervision, Preventing Risks and Promoting the High-Quality Development of the Capital Market (Guo Fa [2024] No. 10), issued by the State Council on April 12, 2024, specifically proposes: comprehensively improving the share reduction rule system; strictly regulating share reduction by major shareholders, specifically controlling shareholders and de facto controllers; resolutely preventing all types of circumvention of share reduction restrictions in accordance with the principle of substance over form; and severely cracking down on all types of non-compliant share reduction. Against this background, the CSRC promulgated the Penalty Rules to refine the penalty provisions for non-compliant share reduction through proposing a classified and tiered framework of liabilities, alerting all types of shareholders and investors against non-compliant share reduction through potential significant monetary penalty and other legal consequences, and highlighting the necessity to conduct strict compliance checks when engaging in transactions concerning transfer of listed shares.
I. Basis of Higher-level Laws
As stated in the Drafting Statement issued by the CSRC on the same day, the 2019 Securities Law has provided legal grounds[1] for the CSRC to penalize “non-compliant share reduction” (i.e. the “non-compliant transfer of securities” as defined under the Penalty Rules):
(1) the scope of non-compliance covers not only specific provisions of certain laws, but also administrative regulations, as well as departmental rules and normative documents issued by CSRC that rank below laws and administrative regulations in the hierarchy of legal framework; and
(2) non-compliant acts are not limited to breaches of transfer restriction periods, but also include violations of requirements on holding periods, selling timing, selling volume, selling methods and information disclosure.
The CSRC further clarifies in the Drafting Statement that in light of the Securities Law and other higher-level laws, the Penalty Rules do not create new violation categories or adjust the scope of penalty discretion but merely specify liabilities for certain non-compliant securities transfer acts within the prescribed scope under the Securities Law.
II. Major Considerations for Rulemaking
As specific types of non-compliant transfer of securities are diverse, circumstances are complicated in practice, and the statutory range of fines stipulated in Article 186 of the Securities Law, i.e. “not exceeding the equivalent value of traded securities”, is relatively broad, the CSRC considers it necessary to clarify certain issues concerning the application of law in determination and penalty imposition in the form of official documents. In addition, following the implementation of the Basic Rules for Administrative Penalty Discretion of the China Securities Regulatory Commission on March 1, 2025, the CSRC considers it necessary to refine the classification standards for discretionary tiers, penalty-determination factors and other matters for different types of cases in accordance with such Rules, to set differentiated penalty ranges, and ensure that penalties are proportionate to the violations. Accordingly, the CSRC has formulated the Penalty Rules based on the foregoing considerations and the past law enforcement experience. It is further stressed that the Penalty Rules are designed to resolve common problems in administrative penalty practice, which itself represents a confirmation of past practice.
III. Relevant Definitions
The term “transfer of securities” as defined in the Penalty Rules includes both transaction-type transfer, such as auction trading, block trading and transfer by agreement, as well as non-transaction-type transfer. However, the CSRC has not elaborated on the meaning of “non-transaction-type transfer”. In our view, this may refer to the terminology “non-transaction transfer” as specified in the Detailed Rules for the Implementation of Non-Transaction Transfer Business of the China Securities Depository and Clearing Corporation Limited (applicable to inheritance, donation and other circumstances), or alternatively, function as a catch-all provision for any circumstance that results in the transfer of share ownership, if it does not fall under the scope of transaction-type transfer.
“Non-compliant transfer of securities” refers to the non-compliant acts that violate Article 36 of the Securities Law and are subject to administrative penalties under Article 186 thereof.
IV. Four Types of Non-compliant Transfer and Corresponding Discretionary Tiers
In accordance with the nature of securities, identity of the actors, characteristics of acts and degree of harm, the Penalty Rules divide non-compliant transfer acts into four categories. Below are set out some examples of “non-compliant transfers of securities” under each category:
Category One: “Transfer of securities during the restricted transfer period” in violation of laws (Article 3)
| Type | Rules | Articles | Violations |
| Transfer in the Restricted Period | Company Law | Article 160(1) | Unlawful transfer of shares issued prior to the IPO within one year from the date the company’s shares were listed and traded on a securities exchange. |
| Article 160(2) | Unlawful transfer of shares by directors, supervisors or senior management within one year after listing, or within 6 months after their resignation, or under other restricted period prescribed by law. | ||
| Securities Law | Article 75 | Unlawful transfer of shares of the target listed company held by the acquirer within 18 months of the completion of a acquisition. |
Category Two: Failure to comply with administrative regulations and CSRC provisions in respect of holding period and selling time (Article 4)
Type
Rules
Articles
Violations
Holding Period / Selling Time
Interim Measures for the Administration of Share Reduction by Shareholders of Listed Companies
Article 7
Transfer of shares by shareholders holding 5% or more of the shares or de facto controllers (collectively, the “major shareholders”) where they themselves are subject to investigation, prosecution, administrative, criminal penalties, or public censure in connection with violation of laws or regulations relating to the listed company and the relevant period has not expired, or where the fines and confiscations have not been paid in full.
Category Three: Failure to comply with laws, administrative regulations and CSRC provisions in respect of selling volume, information disclosure and other requirements (Article 5)
| Type | Rules | Articles | Violations |
| SellingVolume | Interim Measures for the Administration of Share Reduction by Shareholders of Listed Companies | Article 12 | Share reduction by major shareholders of a listed company through auction trading exceeding 1% of the total shares of the company within 3 months, or by other shareholders through auction trading of their pre-IPO shares exceeding 1% of the total shares of the company within 3 months. |
| Article 14 | Share reduction by major shareholders of a listed company through block trading exceeding 2% of the total shares of the company within 3 months, or by other shareholders through block trading of their pre-IPO shares exceeding 2% of the total shares of the company within 3 months, or share reduction by the transferee of the acquired shares within 6 months after acquisition. | ||
| InformationDisclosure | Interim Measures for the Administration of Share Reduction by Shareholders of Listed Companies | Article 9 | Share reduction by major shareholders, directors or senior management through auction trading or block trading without reporting to the stock exchange and pre-disclosing the share reduction plan 15 trading days before the first sale. |
| Rules for the Administration of Shares Held by Directors and Senior Management of Listed Companies and Changes in Such Shares | Article 9 |
Category Four: Failure to suspend trading as required or other non-compliant share transfers in acquisitions (Article 6)
| Type | Rules | Articles | Violations |
| Failure to Suspend Trading in Acquisitions | Securities Law | Article 63(1) | Where an investor and its persons acting in concert hold 5% or more of the voting shares issued by a listed company, continue to buy or sell shares within the three-day period during which the required report and announcement must be made, and the circumstances are serious. |
| Article 63(2) | After an investor and its persons acting in concert hold 5% or more of the voting shares of a listed company, where their shareholding increases or decreases by 5%, they continue to buy or sell the company’s shares from the date on which such change occurs until three days after the relevant announcement, and the circumstances are serious. | ||
| Article 70 | In a tender offer, the acquirer sells shares of the target company during the offer period in violation of the relevant provisions, or purchases shares in a manner other than that specified in the tender offer or on terms exceeding those specified in the tender offer, and the circumstances are serious. |
Nevertheless, any failure to suspend trading as required or other non-compliant share transfers in acquisitions, in violation of the first or second paragraphs of Article 63 or Article 70 of the Securities Law, are distinct from what is commonly referred to as “non-compliant share reductions” and shall be deemed a breach of the “Slow Walk” rules in the securities market. Such acts are therefore separately addressed in Article 6 of the Penalty Rules and are subject to separate discretionary tiers.
Accordingly, the Penalty Rules set differentiated penalty tiers for the above four types of non-compliant transfer acts, as specified below:
Category One: The most harmful type, namely the non-compliant transfer of pre-IPO shares, which shall be divided into three discretionary tiers based on the ratio of “0-30%-50%-100%” of the share transfer amount.
Category Two: Other securities transfer acts in violation of restrictive provisions on holding period and selling time, which shall be divided into three discretionary tiers based on the ratio of “0-20%-30%-100%” of the transfer amount.
Category Three: Securities transfer acts in violation of restrictive provisions on selling volume and information disclosure, which shall be divided into three discretionary tiers based on the ratio of “0-10%-20%-100%” of the transfer amount.
Category Four: Acts of failing to suspend trading as required or other non-compliant share transfers in acquisitions. In consideration of the nature of the act and the degree of social harm, multiple-based fines are applicable with the limit not exceeding the equivalent value of the traded securities, three discretionary tiers shall be divided by reference to “0-3 times-5 times-10 times” of the illegal gains.
In addition, where the illegal gains are less than RMB 1 million, three discretionary tiers shall be applied in accordance with a fixed-amount fine standard of “0 – RMB 3 million – RMB 5 million – RMB 10 million”. Meanwhile, in view of particularly aggravated circumstances in certain cases, such as one-sided selling within a short period or change in control of listed companies due to the violation, a fixed fine of not less than RMB 10 million and not more than RMB 30 million may be imposed for exceptionally serious circumstances within the aggravated penalty tiers of the aforesaid fixed-amount penalty.
Given that the harmfulness of Category Four acts is generally lower than that of typical non-compliant share reductions under similar circumstances, the fine amount for Category Four shall not exceed the upper fine limit of the corresponding discretionary tiers applicable to Category Three under the same conditions, i.e., the fine shall not exceed the upper limit of the corresponding tier among the three discretionary tiers of “0-10%-20%-100%” of the transfer amount.
V. Circumstances for Aggravated Penalty and Tier Upgrade
After the determination of discretionary tiers, the Penalty Rules also clarify the circumstances for no punishment, exemption from penalty, reduced punishment, mitigated punishment and aggravated punishment. The Penalty Rules stipulate that where a party voluntarily repurchases all non-compliantly transferred securities and surrenders the price spread to the listed company prior to the issuance of an administrative penalty decision, its discretionary tier may be lowered by one tier within the statutory scope. For ordinary investors other than major shareholders, directors, supervisors, senior management or acquirers of listed companies, or parties that have voluntarily reported, made public announcements and ceased transfer before discovery by the CSRC or the stock exchange and the ratio and amount of the non-compliant transfer are relatively small, the mitigated punishment or tier reduction may also be applied.
It is particularly noteworthy that the circumstances listed in the Penalty Rules under which the CSRC may impose aggravated penalty or upgrade the discretionary tier, include: (1) large-volume selling within a short period that triggers abnormal fluctuations in stock prices; (2) frequent trading in large amount through the use of borrowed accounts; (3) circumvention of share reduction restrictions by participating in derivative transactions with the listed company’s stocks as underlying assets, securities lending of restricted shares under the securities refinancing mechanism, and short selling through margin trading by restricted shareholders. All such circumstances shall be subject to aggravated penalty or even discretionary tier upgrade. We believe that the aforesaid aggravated circumstances underscore the enforcement priorities and stringent stance of the CSRC, and market participants shall be specially alerted of the compliance risks concerned.
VI. Determination of Liable Parties under Circumstances of Persons Acting in Concert
In accordance with the Penalty Rules, the imposition of administrative penalties on persons acting in concert in securities transfer cases depends primarily on whether such persons are at fault and whether joint non-compliant acts are constituted among them. Where all persons acting in concert jointly conduct non-compliant securities transfer and therefore constitute a joint violation, all of them shall be identified as liable parties. Where only part of the persons acting in concert conduct non-compliant securities transfer, and no evidence proves joint violation by all involved parties, only the parties that have conducted the transfer and are at fault shall be identified as liable parties.
It can be inferred that if a securities broker conducting relevant total return swaps is found to have a concerted relationship with its total return swap client, both of which bear subjective fault, both the client and the securities broker may be deemed to have committed joint non-compliant acts and then bear corresponding liabilities as liable parties.
VII. See-through Supervision
The CSRC stated in the media Q&A that the Penalty Rules fully reflect the principle of see-through supervision. In accordance with the principle of substance over form, the regulatory authorities will strictly crack down on and impose heavier penalties for circumventing regulatory requirements on share reductions through the use of various transactions, instruments or other arrangements. Persons acting in concert who are involved in joint violations or who transfer securities with fault will also be identified as liable parties and held administratively liable in accordance with the law, thereby effectively addressing market misconduct such as the use of nominee accounts and non-compliant nominee shareholding arrangements.
VIII. Securities Market Ban
The Penalty Rules reiterate that a market ban may be applied to non-compliant transfer. For serious circumstances, the CSRC may impose a securities market ban on relevant responsible persons, and the term of such a ban shall be determined by comprehensively considering the facts, nature, circumstances and social harm of the non-compliant act.
The measures that the CSRC may take against non-compliant transfer range from ordering rectification, issuing warnings, and confiscating illegal gains, to imposing significant fines and even market bans. This represents the strictest penalty provisions in history, indicating that non-compliant share reduction is a regulatory red line that requires constant vigilance.
1. Article 36 Where the Company Law of the People’s Republic of China and other laws impose restrictive provisions on the transfer period of securities issued in accordance with the law, such securities shall not be transferred within the restricted period.
Shareholders holding 5% or more of the shares of a listed company, de facto controllers, directors, supervisors and senior management, as well as other shareholders holding shares issued by an issuer before its IPO or shares issued by a listed company to specific persons, shall not transfer shares of the company held thereby in violation of the provisions of laws, administrative regulations and the securities regulatory authority of the State Council concerning holding period, selling time, selling volume, selling method and information disclosure, and shall comply with the business rules of stock exchanges.
Article 186 Anyone who, in violation of the provisions of Article 36 hereof, transfers securities during the restricted transfer period, or transfers shares in non-compliance with the provisions of laws, administrative regulations and the securities regulatory authority of the State Council, may be subject to an order to rectify, a warning, confiscation of any illegal gains, and a fine up to the equivalent value of the securities traded.
