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. 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 subscription and redemption, convertible bond conversion, and other 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 “a constraint” but a “guardrail” for market participants to operate steadily. Under the increasingly clear rules and refined 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 identification include securities held by directors, supervisors, senior management, and natural person shareholders, including their spouses, parents, children, and securities held through others’ accounts.

Dacheng Law Firm states that this means the “key minority” must not only manage their own accounts well but also strengthen family members’ securities account management to avoid violations caused by close relatives’ misoperations. For securities held by specific identity investors’ spouses, parents, and children, the Regulations explicitly consider them as unconditionally owned by the individual 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 noteworthy that the Regulations specify that even if an investor does not have a specific identity when buying, if they acquire such status upon selling (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,” specifically depositary receipts, exchangeable corporate bonds (exchangeable bonds), and 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-Action for Securities Lending under Margin Financing and Securities Lending

Article 6 of the Regulations adopts a “exemption list” format, listing 13 circumstances that do not constitute short-term trading, mainly divided into three categories.

First are business system design scenarios, including convertible stock conversions, convertible bond/exchangeable bond redemption, ETF subscription and redemption, stock incentive exercise, 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, repurchase of illegal reductions, and transactions necessary to maintain financial stability.

It is understood that in the 2023 draft for comments, “carrying out securities lending and return of stocks or other equity-like securities under the ‘Trial Measures for Supervision and Administration of Margin Financing and Securities Lending’” was listed as an exception. However, 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 to indirectly reduce holdings—by lending shares through securities lending, they can temporarily transfer ownership. For cautious regulation, securities lending transactions should also be regarded as “selling” when assessing whether they constitute short-term trading.

The 2026 Regulations explicitly state that buy-in behaviors resulting from CSRC orders for buybacks, mandated repurchases of illegal reductions, or voluntary repurchases of illegal reductions do not trigger short-term trading; additionally, transactions conducted to address major financial risks and maintain financial stability are exempted. Jia Yuan Law Firm notes that these exemptions establish a logical loop of “illegal reduction—mandated buyback.” Previously, shareholders ordered to buy back shares might worry that the buyback itself constitutes 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), it is permitted to calculate holdings separately based on a “one-code account” for each product or portfolio. Jiangsu Century Tongren Law Firm states that this means trading among different fund products will not be combined, avoiding compliance issues caused by numerous products under a single manager, greatly improving trading convenience.

CITIC Construction Investment non-bank analyst Zhao Ran says that treating holdings managed by professional institutions and separately opened securities accounts for each product or portfolio solves previous operational difficulties where transactions could trigger short-term trading restrictions. This provides institutional convenience for long-term funds like social security and pension funds to participate in the market. Meanwhile, while clarifying exemption circumstances, the Regulations also include negative clauses such as “seeking illegal benefits through information advantage,” reflecting a balanced approach of prudent supervision and encouraging compliance, helping to achieve a dynamic balance between facilitating market transactions and preventing illegal activities.