Are you aware of the recently issued regulations on the Short Swing Profit Rules?
The China Securities Regulatory Commission (CSRC) has issued new guidance relating to its short swing profit rules which applies from 7 April, 2026. It has sought to clarify trading practices because the law was unclear and market practice was not consistent. These regulations were long awaited, arising from an initial consultation back in 2023.
Certain lock-in periods apply once a shareholding of 5% is reached in a listed Chinese issuer. This includes a restriction from selling those shares for 6 months from the purchase. If the shares are sold during this period, all the proceeds must be paid to the issuer and retained as the issuer’s profits. The new regulations have clarified a number of areas including:
Calculation of the 5% threshold:
holdings in both domestic and overseas shares issued by the same issuer (such as A shares, B shares and H shares) are to be aggregated
a foreign investor must aggregate its positions obtained through the QFII/RQFII, strategic investment and the Stock Connect channels
holdings of different types of securities e.g. shares, DRs, exchangeable or convertible bonds, shall each be calculated separately
timing of the purchase or sale shall be determined based on the date of registration of the securities
Exemptions:
changes in the type of security held from certain activities are exempt e.g. conversion of preferred shares, conversion of bonds, purchase or redemption of ETFs
Funds:
each product or portfolio can calculate its holding in the issuer separately
no need to aggregate the holdings in an issuer across funds under the same management provided they are managed independently
this includes disaggregation of overseas public funds where trading through QFII/RQFII or northbound Stock Connect (if the shareholding information under Stock Connect is reported)
The lock-in periods and related short-swing profit rules that we see in China are similar to those found in the USA. Developments in short swing rules in these two countries are tracked as part of aosphere’s compliance coverage.
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