On April 12, 2024, the China Securities Regulatory Commission (“CSRC”) solicited for public comments on the Administrative Rules for Program Trading in the Securities Market (Trial) (the “Administrative Rules” or “Consultation Draft”). There is a two-week consultation, which is much shorter than other consultations that are usually a month. This seems to indicate an urgency to promulgate the Administrative Rules and an expectation from the CSRC that the Administrative Rules may be less controversial. The CSRC points out in the Drafting Notes that program trading, especially high-frequency trading, has significant technological, informational, and speed advantages over small and medium-sized investors. It may lead to issues such as strategy convergence and trading resonance and increase market volatility. In recent years, the CSRC has attached great importance to the supervision of program trading and has carried out a lot of work, including strengthening regulatory inquiries in respect of quantitative private fund filings, establishing and improving data statistics and monitoring mechanisms, and formulating program trading reporting rules for the stock market. The CSRC stated that their years of study and research resulted in the creation of the Administrative Rules and that these rules were crafted from the experience of previous regulatory practice. We noted that the Administrative Rules incorporate the fundamental provisions in the Circular on Matters Concerning the Stock Program Trading Reporting (the “Circular”) and related rules issued in September 2023 by each of the three stock exchanges, such as the definition of program trading investors, reporting obligations, program trading activity that requires close monitoring, and the responsibilities of securities company.
The Administrative Rules are the first departmental rules regulating program trading within the framework of the Securities Law and are aimed at strengthening the supervision of program trading in the securities market, promoting the development of program trading in a compliant manner, and safeguarding the securities trading order and market fairness. Article 3 of the Administrative Rules provides that “program trading and related activities shall comply with relevant laws, regulations, these Administrative Rules, and the business rules of securities exchanges and industry associations. They shall adhere to the principle of fairness and shall not affect the security of the securities exchanges’ systems or disrupt normal trading order.” We expect that the Administrative Rules will be formally promulgated shortly after the end of the consultation period.
