Securities Lending and Borrowing Will Not Be Exempt! New Regulations on Short-Term Trading Supervision Released, How Much Will It Impact? The Latest Analysis Is Here

Source: Securities Times Network Author: Liu Yiwen

Recently, the China Securities Regulatory Commission officially released the “Several Regulations on Short-Term Trading Supervision” (hereinafter referred to as the “Regulations”). The Regulations will come into effect on April 7, 2026. As a supporting rule for Article 44 of the Securities Law, the Regulations systematically clarify the standards for identifying short-term trading, exemption circumstances, and supervision requirements, filling an important gap in the regulatory framework of the capital market trading supervision.

“For ordinary investors, the new rules mean a fairer and more transparent market game. Behaviors that attempt to exploit gray areas for insider trading and short-term speculation will face stricter restrictions, while long-term investments based on fundamentals will enjoy a better institutional environment,” said Jiangsu Century Tongren Law Firm.

Regulatory Concept Upgrade

It is reported that compared to the previous “Draft Regulations on Improving the Supervision of Specific Short-Term Trading” released by the CSRC on July 21, 2023, the official version maintains strict supervision while significantly enhancing the clarity and practicality of the rules. It fully incorporates market feedback supporting institutional investment and has been greatly optimized.

Jiangsu Century Tongren Law Firm believes that the release of the Regulations is not only a technical correction but also an upgrade in regulatory philosophy.

First, the rules are more transparent and stable. Clear red lines and exemption lists allow listed companies’ major shareholders, directors, supervisors, senior management, and institutional investors to have stable expectations about their trading behaviors, reducing the risk of “getting caught off guard.”

Second, support for the real economy and market innovation. Exemptions for ETF subscriptions/redemptions, convertible bond conversions, and other business activities actually support innovative use of capital market tools and smooth corporate financing channels.

Third, guiding value investing. By facilitating the operations of long-term funds such as social security, pensions, and foreign investment, regulators aim to shift the market focus from excessive arbitrage to long-term value allocation, which has profound significance for high-quality development of the capital market.

Dacheng Law Firm believes that as an important supporting rule following the revision of the Securities Law, the issuance of the Regulations marks a new stage of more refined, systematic, and internationalized regulation of short-term trading in China’s capital market. In the future, compliance will not be seen as “restraint” but as a “guardrail” for market participants to operate steadily. With clearer rules and more detailed supervision, listed companies, directors, supervisors, senior management, and professional institutions must internalize compliance awareness as a fundamental part of governance to remain steady and far-sighted amid the wave of market development.

Inclusion of Parent-Child Accounts in Supervision

The Regulations clearly define the applicable subjects and securities involved in short-term trading.

Regarding applicable subjects, Article 8 of the Regulations states that the securities involved in short-term trading by directors, supervisors, senior management, and natural person shareholders include securities held by their spouses, parents, children, and securities held through third-party accounts.

Dacheng Law Firm notes that this means the “key minority” must not only manage their own accounts well but also strengthen management of family members’ securities accounts to avoid violations caused by misoperations of close relatives. For securities held by spouses, parents, or children of specific investors, the Regulations explicitly treat them as unconditionally owned by the investor based on their relationship. For securities held by third parties without close kinship, they must constitute “using others’ holdings” to be combined, which can be difficult to prove if there is prior collusion, posing challenges for securities enforcement.

It is also noteworthy that the Regulations specify that even if an investor does not have a specific identity at the time of purchase, if they acquire such status later (e.g., becoming a major shareholder through increased holdings), their trading behavior must also comply with short-term trading rules.

Regarding securities scope, besides traditional stocks, the Regulations include “other equity-like securities,” such as depositary receipts, exchangeable corporate bonds (exchangeable bonds), and convertible corporate bonds (convertible bonds). Jiangsu Century Tongren Law Firm believes this means that short-term arbitrage involving these derivative instruments is also subject to the “six-month reverse trading” ban.

No Exemption for Securities Lending via Repo

Article 6 of the Regulations lists 13 circumstances that do not constitute short-term trading, mainly divided into three categories.

First are business system design scenarios, including convertible stock conversions, redemption of convertible/exchangeable bonds, ETF subscriptions/redemptions, stock incentive exercises, and market maker quoting obligations. Second are non-trading factors, such as judicial enforcement, inheritance, donations, and state-owned share transfers without compensation. Third are regulatory stabilization measures, including buybacks or repurchases of shares to address violations or maintain financial stability.

It is known that the 2023 draft included “carrying out securities lending and repayment of stocks or other equity-like securities under the ‘Trial Measures for Supervision and Administration of Securities Lending Business’” as an exception, but the 2026 new Regulations have removed this clause.

Jia Yuan Law Firm suggests that this change may be due to practical issues where listed company shareholders use securities lending via repo to indirectly reduce holdings—effectively temporarily transferring shares. For prudence, when judging whether such transactions constitute short-term trading, securities lending via repo should also be regarded as a “sale.”

The 2026 Regulations explicitly state that buybacks or repurchases ordered by the CSRC due to violations, or voluntary repurchases of illegal holdings, do not trigger short-term trading. Additionally, exemptions are added for transactions necessary to address major financial risks and maintain financial stability. Jia Yuan Law Firm notes that these exemptions establish a logical loop of “illegal reduction—ordered repurchase.” Previously, shareholders ordered to buy back shares might worry that the buyback itself would constitute short-term trading; the new rules in 2026 eliminate this compliance paradox.

Introduction of Long-Term Funds

To facilitate the operation of professional institutional investors and attract more medium- and long-term capital, the Regulations optimize the calculation method for institutional holdings.

For legally established and independently operated domestic and foreign professional institutional investors (such as public funds, social security funds, insurance funds, and qualifying private securities funds), the Regulations allow holdings to be calculated separately based on a “one-code account” for each product or portfolio. Jiangsu Century Tongren Law Firm states this means that transactions between different fund products will not be combined, avoiding compliance issues caused by multiple products managed by a single manager, greatly improving trading convenience.

CITIC Construction Investment non-bank analyst Zhao Ran says that treating holdings managed by professional institutions and opened separately for each product or portfolio solves previous operational difficulties where transactions could trigger short-term trading restrictions. This provides institutional investors like social security funds and pensions with a regulatory advantage for long-term market participation. At the same time, while clarifying exemption circumstances, the Regulations include negative clauses such as “using information advantages to seek illegal benefits,” reflecting a balanced approach of prudent supervision and encouraging compliance, helping to achieve a dynamic balance between facilitating market transactions and preventing illegal activities.