JC Master · Listed Company Securities Compliance Column | The New Short-Term Trading Regulations Are About to Take Effect—Clarified with Examples of Exempted Situations

　　The high-quality development of the capital market hinges on the compliance foundation of listed companies. As the registration-based system is fully implemented and regulatory frameworks are iteratively refined, securities compliance has become a central pillar for the stable operation of listed offices. Accurately aligning with regulatory guidance and fortifying compliance safeguards are critical enablers for enterprises to navigate market cycles.

　　To this end, we have established this dedicated column, focusing on the core areas of securities compliance for listed companies: summarizing the key points of new regulatory rules, deconstructing the rationale behind typical enforcement actions, dissecting the essence of court rulings, and thoroughly examining the practical challenges of compliance. Adopting a legal‑professional perspective, we employ clear, pragmatic language and scenario‑based analysis to interpret compliance requirements, map out risk pathways, and provide actionable guidance, helping companies strengthen their internal control systems, mitigate compliance risks, and enhance the effectiveness of their compliance management.

　　When compliance thrives, enterprises thrive; when compliance is stable, development is stable. We hope this column will serve as a trusted professional partner for listed companies—helping them discern regulatory trends, address compliance challenges, mitigate compliance risks, and strengthen the foundations of sustainable growth—so that together we can foster the sound and healthy development of the capital market.

　　To implement the requirements of the Securities Law of the People’s Republic of China (hereinafter referred to as the “Securities Law”), optimize the regulation of short-term trading, safeguard the legitimate rights and interests of investors, and stabilize market expectations, the China Securities Regulatory Commission has formulated the “Several Provisions on the Regulation of Short-Term Trading” (hereinafter referred to as the “Provisions”).

　　The Regulations set forth detailed provisions regarding the determination of short‑term trading and the circumstances under which exemptions may apply. Below, we highlight several key exemption scenarios that listed companies should take note of.

　　01 Certain Exemptions Under the “Limited One-End Theory”

　　Pursuant to Article 4 of the Regulations, this provision shall apply where an investor with a specified status sells securities within six months of purchase, or purchases securities within six months of sale. It shall also apply where an investor does not possess the specified status at the time of purchase but acquires such status prior to selling.

　　For investors with specific statuses—such as major shareholders, directors, or senior executives—the Regulations further expand the scope of restrictions: even if an investor does not hold such a status at the time of purchase but acquires it by the time of sale, they must still comply with the relevant short‑term trading requirements. The following scenarios all fall within the purview of short‑term trading rules:

　　1. Director A of a listed company sold shares within six months of having purchased them;

　　2. Shareholder B, who holds 4% of the shares, sells off a portion of their holdings within six months after increasing their stake to 5%.

　　3. A certain natural person, C, was appointed as a senior executive after acquiring shares in a listed company and subsequently reduced his holdings within six months of the purchase.

　　Assessing short‑term trading solely on the basis of identity at one point in time applies only when the investor lacks the requisite status at the time of purchase but acquires it upon selling. Conversely, if the investor possesses a specific status at the time of sale but did not have it at the time of purchase, such transactions need not be classified as short‑term trading. Furthermore, the following situations are likewise exempt from the short‑term trading rules:

　　1. After shareholder A, who held more than 5% of the shares, reduced his stake to below 5%, he lost his status as a major shareholder; therefore, any purchases of the listed company’s shares within six months do not constitute short-term trading.

　　2. If Director B of a listed company sold shares while still serving as a director and subsequently lost that status upon leaving office, any subsequent purchase of shares would not constitute short-term trading in relation to the prior sale.

　　3. After an individual, Party C, sells shares of a listed company, they are appointed to a senior management position and, within six months of the sale, purchase shares again.

　　02 Securities of different classes do not need to be consolidated for calculation.

　　Pursuant to Article 7 of the Regulations, securities involved in the determination of short-term trading shall be calculated separately based on the respective holdings of each security type, including stocks, depositary receipts, exchangeable corporate bonds, and convertible corporate bonds.

　　The Regulations clarify that securities of different classes shall be subject to the short‑term trading rules on a separate basis, without requiring their aggregate consideration. The following circumstances are exempt from the application of the short‑term trading rules:

　　1. Within six months after increasing its holdings of the company’s shares, major shareholder A of the listed company sold its convertible bonds in that company.

　　2. Following the sale of shares in a listed company, directors shall, within six months, use the proceeds from such sales to purchase the company’s convertible bonds and subsequently convert them into equity.

　　03 Conversion, redemption, and put options for convertible corporate bonds are not subject to short-term trading rules.

　　Scenario 1: Director A of a listed company holds the company’s convertible bonds, successfully converts them into shares in January 2026, and completes the sale of the converted shares in February 2026. In this scenario, no short‑term trading is involved, and the conversion is not treated as a purchase under the Regulations.

　　Scenario 2: In January 2026, major shareholder B of a listed company increases its holdings of the company’s convertible bonds. In February 2026, the listed company exercises its right to redeem the outstanding convertible bonds that have not yet been converted into shares, in accordance with the relevant regulations governing convertible bonds. Under these circumstances, no short‑term trading violation arises; the redemption of convertible bonds is not treated as a “sale” under the Regulations, and the same applies to the put option on convertible bonds.

　　04 Non‑trading activities such as judicial enforcement, inheritance, and donations are not subject to short‑term trading rules.

　　Scenario 1: In January 2026, major shareholder A of a listed company increased its shareholding. In March 2026, due to the expiration of a pledge, the shares were subject to compulsory enforcement, resulting in a reduction of the holding. This situation does not constitute short-term trading, as judicial enforcement is not deemed to be a “sale” under the Regulations.

　　Scenario 2: In January 2026, major shareholder B of a listed company reduces his shareholding. In February 2026, B’s father passes away, and B inherits the shares held by his father and completes the transfer of ownership. Under these circumstances, no short-term trading violation arises, as inheritance is not treated as a “sale” under the Regulations.

　　Similarly, donations are not treated as sales under the Regulations.

　　05 The grant, registration, or exercise of equity incentives shall not be subject to short‑term trading rules.

　　Scenario 1: Director A of a listed company, as an incentive recipient, reduces his shareholding in January 2026 and, in February 2026, is granted and registered with Class I restricted shares. In this scenario, no short‑term trading violation arises, and the grant and registration of the Class I restricted shares are not deemed to constitute a “purchase” under the Regulations.

　　Scenario 2: Director B of a listed company, as an incentive recipient, vests in Class II restricted shares in January 2026 and reduces his holdings in February 2026. In this scenario, no short‑term trading violation applies, and the vesting of the Class II restricted shares is not deemed to constitute a purchase under the Regulations.

　　Similarly, the exercise of an option is no longer regarded as a purchase under the Regulations.

　　06 The act of purchasing and repurchasing shares as ordered by the regulatory authority is not subject to short-term trading rules.

　　Scenario 1: In January 2026, Controlling Shareholder A of a listed company reduced its shareholding. Subsequently, the reduction was found to be in violation of applicable regulations, and the regulatory authority imposed penalties and ordered the repurchase of the shares. In March 2026, Controlling Shareholder A repurchased the shares it had previously sold. Under these circumstances, no short‑term trading issue arises, and the regulatory order to repurchase the shares is not subject to the short‑term trading rules.

　　The foregoing constitutes the principal circumstances of exemption. In fact, this Regulation expressly sets out 13 specific situations in which short‑term trading may be exempted, as follows:

　　(1) Conversion of preferred shares;

　　(2) Conversion, redemption, and put options for exchangeable corporate bonds;

　　(3) Conversion of convertible corporate bonds into shares, redemption, and put options;

　　(4) Subscription, purchase, and redemption of exchange-traded open-end index funds (ETFs). Funds that invest in securities strictly in accordance with the constituent weights of the relevant index may experience changes in their security holdings due to index‑tracking adjustments or due to investor subscriptions, purchases, and redemptions.

　　(5) Non‑transactional acts such as judicial enforcement, inheritance, and donations;

　　(6) In accordance with the decision of the state‑owned share management authority, state‑owned shares shall be transferred free of charge;

　　(7) Granting and registration of restricted shares under equity incentive plans, or exercise of stock options, for listed companies and companies listed on the New Third Board;

　　(8) Securities offices’ purchase of remaining shares after a office commitment underwriting;

　　(9) Securities companies and other entities, in accordance with applicable laws, regulations, and relevant requirements, shall conduct stock market-making activities in compliance with the law and fulfill their obligations to provide market-making quotes;

　　(10) Share repurchases conducted pursuant to a repurchase order issued by the China Securities Regulatory Commission in accordance with Article 24 of the Securities Law;

　　(11) Share repurchases undertaken pursuant to regulatory measures issued by the China Securities Regulatory Commission mandating the repurchase of shares acquired in violation of regulations, or initiated voluntarily by the violating party.

　　(12) Transaction activities conducted in accordance with laws and regulations to address significant financial risks and safeguard financial stability;

　　(13) Other circumstances as prescribed by the China Securities Regulatory Commission.

　　It primarily covers three types of situations:

　　1. In accordance with product or business‑specific policies, when the market has clear expectations for relevant transaction stages and such transactions are necessary to support business development—such as the conversion of preferred shares, the conversion, redemption, or put of convertible bonds, the exchange, redemption, or put of exchangeable bonds, ETF subscriptions, purchases, and redemptions, the grant, registration, and exercise of equity‑based incentive plans, and market‑making activities—these may be accommodated.

　　2. Where shareholding changes result from objective, non‑transactional factors—such as judicial enforcement, inheritance, donation, or the gratuitous transfer of state‑owned shares—

　　3. Transactions conducted in accordance with regulatory requirements or as necessary to address significant financial risks and maintain financial stability, such as mandated buybacks in cases of fraudulent issuance or compulsory repurchases for unauthorized share reductions, are subject to these provisions. To prevent the circumvention of regulatory oversight through the invocation of exemption clauses, the Regulations expressly stipulate that such actions shall not be exempted if they involve the exploitation of informational advantages or other means to obtain illicit gains.

　　Going forward, major shareholders and directors, supervisors, and senior executives of listed companies should pay close attention to the circumstances that trigger short‑term trading prohibitions when engaging in stock transactions, and also familiarize themselves with the exceptions that exempt them from such restrictions, thereby better safeguarding their own rights and interests.