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

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. They are an important addition to the regulatory framework in the capital market trading supervision field.

“For ordinary investors, the new rules mean a fairer and more transparent market playing field. 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.

Enhanced Regulatory Philosophy

It is reported that compared to the previous “Draft Regulations on Improving the Supervision of Certain Short-Term Trading” released by the CSRC on July 21, 2023, the official version maintains strict supervision while significantly improving clarity and practicality. 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 major shareholders, directors, supervisors, senior management, and institutional investors of listed companies to have stable expectations about their trading behaviors, reducing the risk of “getting caught off guard.”

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

Third, it guides value investing. By facilitating the operations of social security, pensions, foreign capital, and other long-term funds, 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 regulation 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 steady progress. 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 stable and far-sighted amid the waves 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 states that the securities held by directors, supervisors, senior management, and natural person shareholders involved in short-term trading include securities held by their spouses, parents, children, and securities held through others’ 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 restrictions.

In terms of securities scope, beyond traditional stocks, the Regulations include “other equity-like securities,” specifically 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.

Repurchase and Securities Lending Not Considered Exemptions

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 preferred stock conversions, convertible bond/exchangeable bond redemption, 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 mandated buybacks or repurchases of illegal reductions in holdings to maintain financial stability.

It is known that the 2023 draft included “carrying out securities lending and return of stocks or other equity-like securities under the supervision of the ‘Securities Lending Business Pilot Measures’” as an exception, but this was removed in the 2026 official version.

Jia Yuan Law Firm suggests that this change may be due to practical issues where listed company shareholders use securities lending to indirectly reduce holdings—by temporarily transferring shares through securities lending, effectively achieving a form of “temporary transfer.” To be cautious, trading through securities lending should be regarded as a “sale” when assessing short-term trading.

The 2026 Regulations explicitly state that buy-in behaviors resulting from the CSRC’s order for repurchase, forced buybacks, or voluntary repurchase 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 constitutes short-term trading; the new rules eliminate this 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, independently operated domestic and foreign professional institutional investors (such as public funds, social security funds, insurance funds, and qualifying private securities funds), holdings can be calculated separately based on a “one-code account” per product or portfolio. Jiangsu Century Tongren Law Firm states this means that trading across different fund products will not be aggregated, avoiding compliance issues caused by multiple products under a single manager, greatly improving trading convenience.

CITIC Construction Investment non-bank analyst Zhao Ran indicates that treating holdings managed by professional institutions with separate securities accounts per product or portfolio addresses previous operational difficulties where transactions could trigger short-term trading restrictions. This provides institutional investors like social security funds and pensions with a regulatory framework conducive to long-term participation. Meanwhile, explicit exemption conditions and the inclusion of negative clauses such as “seeking illegal benefits through information advantage” reflect a balanced approach of prudent supervision and encouraging compliance, helping to maintain a dynamic balance between facilitating market transactions and preventing violations.