Today’s Focus: Clarify Short-Term Strategies and Strengthen Long-Term Foundations

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■ Su Xianggao

Starting from April 7, the CSRC’s “Several Provisions on the Regulation of Short-Term Trading” (hereinafter referred to as the “Provisions”) has officially taken effect. As an important measure to implement the Securities Law, the “Provisions” focuses on complex scenarios involved in recognizing short-term trades. By unifying standards and clarifying boundaries, it protects investors’ lawful rights and interests and stabilizes market expectations, while also providing smoother institutional conditions for medium- and long-term capital to enter the market.

At first glance, the “Provisions” appear to be a refinement of specific trading rules; in fact, they are a long-term plan to optimize the market ecosystem and promote high-quality development of the capital market. The vitality of a system lies in being precise and enforceable. In the face of increasingly complex short-term trading practices, questions such as “who should be restricted, how to define the timing, which situations are exempt, and how institutions should apply them” urgently require clear yardsticks. Precisely based on this, the “Provisions” fill in institutional details around these core elements. Overall, its far-reaching significance in improving the basic institutional system for the capital market is mainly reflected in four dimensions.

First, make the recognition criteria clear, so market expectations are more stable.

The “Provisions” further unify several key interpretations, including the scope of regulatory targets, the recognition of the timing of buying and selling, the calculation of shareholding ratios, and the recognition of cross-border shareholding aggregation. For example, the timing of buying and selling is determined by the securities transfer registration date; the shareholding ratio of major shareholders of more than 5% is calculated by aggregating shares that have been issued or listed and publicly transferred in both domestic and overseas markets by the same listed company or a company listed on the NEEQ.

These arrangements may seem to be technical in nature, but they directly relate to the smooth operation of the market. The clearer the rules, the more accurately market entities can grasp the boundaries, the lower the compliance costs, and the more stable the trading arrangements. For the capital market, clear rules are not only constraints, but also an important institutional supply for stabilizing confidence and guiding long-term investment.

Second, make exemption situations clear, so regulation can be more precise.

The “Provisions” specify multiple circumstances that do not constitute short-term trading, mainly including three categories: one category involves securities changes determined by business mechanisms, such as conversion of convertible bonds, ETF subscription and redemption, and market-making business; another category involves shareholding changes caused by non-transaction factors such as inheritance, donation, judicial compulsory enforcement, and the gratuitous transfer of state-owned shares; and the third category involves transactions conducted in accordance with law and regulations to respond to major financial risks and maintain financial stability. At the same time, the rules also draw the bottom line: if illegal benefits are sought by using this, exemptions cannot be applied.

This means that the regulator improves precision. By keeping in check the behaviors that truly should be regulated, and separating normal business that should not be mistakenly affected, the system can both uphold the bottom line of fairness and be more aligned with actual market conditions.

Third, make institutional arrangements more detailed, so long-term funds can enter the market more smoothly.

One of the most closely watched parts of the “Provisions” is that, for products or portfolios managed by certain professional institutions, under the premise of legally opening accounts separately and operating independently, they are allowed to compute the number of shares held separately by product or by portfolio. The scope includes social security funds, basic pension insurance funds, annuity funds, insurance funds, public funds, some private asset management products, and overseas public funds that meet the conditions, among others. Meanwhile, if a product or portfolio cannot be operated independently and in a standardized manner, or if there are circumstances such as conflicts of interest, or violations of laws and regulations, then separate calculation will not be allowed.

This arrangement is not just a technical patch, but an active adaptation to the investment patterns of long-term funds. Why long money is important is not only because of its size, but also because it has a long investment horizon, stable investment style, and rational behavior. Only when the system is better adapted to long-term funds will long money be more willing to come, be able to invest well after it enters, and be able to stay after investing.

Fourth, unify internal and external interpretations, making the open market more attractive.

The “Provisions” also reflect a clear orientation toward “consistency between domestic and overseas.” On the one hand, the same overseas investor should aggregate the quantity of securities it holds through qualified overseas institutional investors (QOII), RMB qualified overseas institutional investors (RQOII), foreign strategic investors, and the Stock Connect mechanisms between Shanghai and Shenzhen and Hong Kong. On the other hand, overseas public funds that meet the requirements can also calculate the number of shares held separately by product or by portfolio. Such arrangements both uphold unified standards and take into account different institutions’ operational characteristics.

The deeper the opening, the more a transparent, unified, and predictable rule system is needed. Only by enabling both domestic and overseas investors to form stable expectations under a clear and consistent institutional framework can market fairness be more solidly grounded, and can long-term funds’ willingness to allocate be better ensured.

In short, stepping out of the specifics of individual provisions, the far-reaching value of the “Provisions” lies in optimizing the capital market ecosystem through the certainty of the system. The clearer the rules, the more the market will show respect; the more explicit the boundaries, the more steadfast long money will be. This is not only an upgrade of regulatory technical measures, but also an inevitable path for China’s capital market to move toward maturity. As the basic systems are continuously strengthened across all dimensions, the foundation that gathers “patient capital” and empowers high-quality development will surely become even more solid.

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Editor: Gao Jia