W88优德官方网站 Key Points of the Exchanges’ Implementation Rules for Program Trading

On April 3, 2025, the three PRC stock exchanges, i.e., the SSE, SZSE, and BSE (collectively, the “Exchanges”), issued the Detailed Implementation Rules for the Management of Program W88优德官方网站 (“Implementation Rules”) for public comment. This comes after the official release on May 15, 2024, of the Administrative Rules for Program W88优德官方网站 in the Securities Market (Trial) (“Administrative Rules”) by the China Securities Regulatory Commission (“CSRC”). The Implementation Rules will take into effect on July 7, 2025. The content of these Implementation Rules released by each Exchange are basically the same[1], aiming to implement the regulatory requirements in the Administrative Rules. In this briefing, we focus our analysis on the key provisions of the Implementation Rules of the SSE and look at how they differ from the Administrative Rules.

I. Incorporates Provisions on Stock Market Program W88优德官方网站 Previously Adopted by the Exchanges

The Implementation Rules incorporate certain provisions in these circulars as well as the corresponding reporting templates (collectively, the “Circulars”) issued by the SSE, and refine and improve the specific provisions. Jointly, the Administrative Rules, the Implementation Rules, the Circulars, the consultation paper of program W88优德官方网站 reporting guidelines under Stock Connect issued by the SSE and the SZSE on April 3, 2025 (the “Guidelines”, please refer to our Client Briefing dated April 9, 2025 - The SSE and the SZSE Solicit Comments regarding Program W88优德官方网站 Reporting Guidelines under Stock Connect) and other higher-level legal sources, form a comprehensive regulatory system for program W88优德官方网站 in China.

1. Scope of Application

The Implementation Rules clarify the scope of application and state that program W88优德官方网站 of securities, such as stocks, bonds, funds, and depositary receipts, should comply with the Implementation Rules.

The Implementation Rules define program W88优德官方网站 and align the definition with the Circulars. Program W88优德官方网站 refers to the act of W88优德官方网站 securities on an Exchange through automatic generation or the delivery of trade orders by a computer program. This includes W88优德官方网站 that follows pre-set strategies and automatically selects specific securities and timings for W88优德官方网站, or W88优德官方网站 that follows pre-set algorithms and automatically executes trade orders, or any other acts with the characteristics of program W88优德官方网站. Our interpretation is that, even if investors make discretionary W88优德官方网站 decisions, once they use program W88优德官方网站 software to automatically execute orders, it is considered program W88优德官方网站 under the Implementation Rules.

2. Management of Program W88优德官方网站 Reporting

In addition to program W88优德官方网站 reporting requirements, the Implementation Rules newly require program W88优德官方网站 investors to ensure that the program W88优德官方网站 strategies and information technical systems they use comply with laws and regulations as well as the Exchange’s business rules.

The information to be reported under the Implementation Rules is in line with the existing Administrative Rules and Circulars. Consistent with the Circulars in general, program W88优德官方网站 investors are required to report any significant changes in the reported information to the securities company by the fifth W88优德官方网站 day of the next calendar month. The securities company should report to the Exchange within five W88优德官方网站 days upon receiving a significant change report submitted by a program W88优德官方网站 investor. If a securities company finds that its client has failed to report a significant change in the reported information in a timely manner, they should urge the client to report the change as soon as possible. Significant changes include the following: (1) there are significant changes in the capital scale of the account compared to the reported information; (2) the source of leveraged funds changes, or there are significant changes in the scale of the leveraged funds compared to the reported information; (3) the contact person of the securities company or the contact person of an institutional program W88优德官方网站 investor changes; (4) the maximum order placement/cancellation frequency or the maximum number of daily order placements/cancellations changes; (5) the primary type of W88优德官方网站 strategies changes; (6) the information regarding the program W88优德官方网站 software changes; (7) the account no longer engages in program W88优德官方网站; and (8) other significant changes recognized by the Exchange.

II. The Looking-through Requirements

The Implementation Rules propose principled provisions on the looking-through requirements for securities companies and program W88优德官方网站 investors from different angles. Securities companies should establish program W88优德官方网站 monitoring, identification, and reporting verification mechanisms to identify, in a timely manner, clients who are required to report program W88优德官方网站 (or to report significant changes). They should urge them to fulfill their reporting obligations in a timely manner and conduct thorough verification of the information reported by clients. This requires securities companies to verify their client’s identities on a looking-through basis and to verify, the fund information, W88优德官方网站 information, and program W88优德官方网站 software information. These provisions clarify the securities companies’ verification obligations on client information on a looking-through basis. However, securities companies may need to further explore in practice how to fully discharge their verification obligations due to the vagueness of the boundaries of such responsibilities.

The Implementation Rules stipulate that program W88优德官方网站 investors, if entering into total return swap transactions with clients and conducting program W88优德官方网站 through their own accounts, should report the relevant client information as required by the Exchange. The specific reporting requirements will be separately stipulated by the Exchange.

Significantly, this marks the first time that total return swap (TRS or swap) business is explicitly included within the program W88优德官方网站 regulatory framework established by CSRC and the Exchanges. It introduces a new requirement for the swap business to be reported under the program W88优德官方网站 regime, which is specifically relevant to current market practices where qualified foreign institutional investors (QFIs) engage in program W88优德官方网站 and offer swap products to their clients.

At present, there is no clarity on when such reporting requirement will become finalized. In anticipation of these developments, we believe that the Exchanges are likely to collaborate closely with the relevant QFI supervisory authority in designing an appropriate reporting framework. We strongly recommend that QFIs engaged in such activities closely and proactively monitor any updates or guidance related to this regulatory initiative.

In contrast, the Guidelines specify that when northbound investors under Stock Connect engage in total return swap transactions involving SSE or SZSE-listed stocks through their own accounts via program W88优德官方网站, the SSE or the SZSE may, under Stock Connect regulatory cooperation framework, exercise discretion to “see-through” and obtain information about the swap counterparty.

This approach is notably different from the QFI swap reporting requirement, as under Stock Connect, it will be at the discretion of the SSE/SZSE on a case-by-case basis whether to obtain such counterparty information through regulatory cooperation arrangements. If/When the QFI swap reporting framework is established, we anticipate that the counterparty information required may closely align with existing QFI swap reporting standards. However, we believe the Exchanges also retain the flexibility to request additional information as needed on a case-specific basis.

III. Management of Abnormal W88优德官方网站 Behavior

1. Focus of Monitoring

Exchanges shall conduct real-time monitoring of program W88优德官方网站 activities and focus on monitoring abnormal W88优德官方网站 behavior that may affect the security of the Exchange’s systems or normal W88优德官方网站 orders. Abnormal W88优德官方网站 behavior includes:

(1) Abnormal instantaneous order placements, which refers to a large number of order placements within a very short time period, i.e., the number of order placements and cancellations reaches a certain standard within one second;

(2) Frequent instantaneous order cancellations, which refers to frequent occurrences of rapid order cancellations after placements within a day, with a high proportion of order cancellations throughout the day, i.e., multiple occurrences of order cancellations after placements within one second throughout a day, and the proportion of order cancellations throughout the day reaches a certain standard;

(3) Frequent lifting or suppressing, which refers to multiple occurrences of slight lifting or suppressing in the price of one or more stocks within a day, i.e., the price increase (decrease) of a single stock within one minute and the proportion of investors’ W88优德官方网站 volume during that period reach a certain standard, which occurs multiple times within a day;

(4) Large-volume order executions within a short time period, which refers to extremely large buy (sell) amounts within a short time period, intensifying fluctuations in the main indices of the Exchange, i.e., the increase (decrease) in the Shanghai Composite Index or the STAR Market 50 Index within one minute, and the amounts and proportion of investors’ discretionary buy (sell) orders during that period reach a certain standard;

(5) Other abnormal W88优德官方网站 behavior that the Exchange deems necessary to monitor closely.

We look forward to the Exchanges’ further clarification on the definition of “certain threshold” referred to in paragraphs (1) to (4) of this Article and “slight lifting or suppressing” in paragraph (3) (in particular how this relates to stock liquidity).

During the monitoring process of abnormal W88优德官方网站 behavior on other securities, such as bonds, funds, and depositary receipts, that may affect the security of the Exchange’s systems or normal W88优德官方网站 orders, the Exchanges can focus on monitoring based on the standards mentioned above and adjust the standards according to their self-disciplinary needs.

It is important to note that even if the program W88优德官方网站 investors’ behavior does not reach but is close to the above-mentioned thresholds and involves repeated execution of similar types of transactions, the Exchanges may exercise discretion to classify such behaviors as abnormal W88优德官方网站 or require brokers to closely monitor and pay special attention to these activities.

The Implementation Rules explicitly prohibit institutional program W88优德官方网站 investors, such as public fund managers, private fund managers, and QFIs, that conduct program W88优德官方网站 through fund products, to evade regulatory oversight of abnormal W88优德官方网站 behavior by launching separate fund products.

If program W88优德官方网站 causes significant abnormal fluctuations in securities W88优德官方网站, or if unforeseen events such as force majeure events affect normal securities W88优德官方网站 orders, the Exchanges may take measures in accordance with their business rules, such as suspending the W88优德官方网站 of a single stock during W88优德官方网站 sessions, suspending the W88优德官方网站 of a single stock for certain W88优德官方网站 days, or closing the market temporarily. If a program trader is subject to the W88优德官方网站 restrictions due to engaging in abnormal W88优德官方网站, the Exchanges may, depending on the situation, notify the CSRC local offices, the Securities Association of China (SAC), the Asset Management Association of China (AMAC), and may also concurrently take the disciplinary measures, such as on-site inspections and regulatory talks.

2. Monitoring Responsibilities of Securities Companies

Pursuant to the Implementation Rules, securities companies shall (i) effectively manage their client’s program W88优德官方网站 behavior, (ii) put program W88优德官方网站 under abnormal W88优德官方网站 monitoring, (iii) continuously improve the abnormal W88优德官方网站 monitoring systems, (iv) strengthen the monitoring of orders that may seriously affect securities W88优德官方网站 prices and liquidity, (v) identify, manage, and report clients’ suspected abnormal W88优德官方网站 behavior in a timely manner, and (vi) actively cooperate with the Exchanges in W88优德官方网站 behavior oversight. When a client commits the following actions, a securities company should refuse their program W88优德官方网站 orders or cancel related orders in accordance with the agreement or other appropriate methods entered with the client:

(1) Clients refuse to fulfill the reporting obligations or the obligations to report significant changes, or fail to truthfully, accurately, completely, and timely fulfill the reporting obligations or obligations to report significant changes;

(2) Clients refuse to cooperate with the securities company in conducting due diligence on program W88优德官方网站, or refuse to accept the securities company's verifications and inspections;

(3) A client’s information technical systems used for program W88优德官方网站 experience significant technical failures, or a client’s program W88优德官方网站 orders experience significant abnormalities;

(4)  A client’s program W88优德官方网站 may affect the security of the W88优德官方网站 systems or normal W88优德官方网站 orders;

(5) The information technical system used by clients for program W88优德官方网站 is different from the system that has been verified, tested, and risk-assessed by the securities company;

(6) Other matters agreed upon in the relevant entrustment agreement or other appropriate methods between the client and the securities company.

IV. Requirements on W88优德官方网站 Server Co-location

Articles 30 and 31 of the Implementation Rules regulate the use of the Exchange’s W88优德官方网站 server hosting services. Securities companies using the Exchange’s W88优德官方网站 server hosting services should utilize the hosting resources reasonably and in compliant with the Exchange’s management rules. Securities companies should strengthen the management of their clients using the Exchange’s hosting resources for program W88优德官方网站 and ensure the W88优德官方网站 fairness. It requires that securities companies conduct a thorough evaluation and retain the evaluation results, which should include their clients’ W88优德官方网站 compliance and the operation of information technical systems, before allowing their clients to use the Exchange’s hosting resources for program W88优德官方网站.

If the use of the Exchange’s W88优德官方网站 server hosting services by securities companies affects the security of the Exchange’s systems or normal W88优德官方网站 orders, the Exchange may suspend the provision of the W88优德官方网站 server hosting services. If clients’ using the Exchange’s hosting resources for program W88优德官方网站 experiences any of the following situations, securities companies should suspend the use by the clients of the Exchange’s hosting resources:

(1) Multiple occurrences of abnormal W88优德官方网站 behavior within one month, resulting in W88优德官方网站 restrictions imposed by the Exchange on the investor’s accounts;

(2) Situations as stipulated in Article 23 or Article 24 of the Implementation Rules, with the relevant clients being responsible for such situations;

(3) Significant technical failures of the information technical systems used for program W88优德官方网站;

(4) Other situations determined by the Exchange.

V. Management of High-Frequency W88优德官方网站

Both the Administrative Rules and the Circulars contain provisions on high-frequency W88优德官方网站. The Implementation Rules further specify the thresholds for high-frequency W88优德官方网站 as being that, the maximum number of order placements and cancellations per second in a single account reaches 300 or more, or the maximum number of order placements and cancellations in a single account within a single day reaches 20,000 or more. The Implementation Rules also set forth a series of differentiated supervisory arrangements for high-frequency W88优德官方网站, including:

(1) Additional reporting requirements. High-frequency W88优德官方网站 investors should, through their securities companies, report additional information to the Exchange, namely, (i) the location of the high-frequency W88优德官方网站 system server; (ii) the test report of the high-frequency W88优德官方网站 systems; (iii) emergency plans for the high-frequency W88优德官方网站 system malfunctions; (iv) other information required by the Exchange.

The Implementation Rules exempt the following activities from the additional reporting requirements: when investors execute trade orders automatically (only at the stage of order execution) by using pre-set order splitting algorithms for the purpose of reducing the market impact of large orders or ensuring the trade fairness across different investment portfolios, and the investors have fulfilled the basic information reporting obligations as stipulated in Article 9 of the Implementation Rules, they may be exempted from the aforementioned additional reporting requirements. These investors include public fund managers and their subsidiaries, the Exchange’s members that are engaged in asset management business, QFIs, and any other investors recognized by the Exchange, but exclude private fund managers. The reporting period is extended for these investors in the event of any significant changes in their reported fund scale of the account, the source of leveraged funds, or the scale of the leveraged funds, i.e., they are required to report these significant changes by the fifth W88优德官方网站 day of the next quarter following the occurrence of the change.

(2) Apply stricter and more severe management of abnormal W88优德官方网站 behavior. The Exchanges shall focus on the supervision of high-frequency W88优德官方网站. If investors engage in abnormal W88优德官方网站 behavior in high-frequency W88优德官方网站, the Exchange may apply stricter and more severe self-disciplinary management measures in accordance with the regulations and require the securities companies to strengthen the management of the relevant client’s W88优德官方网站 behavior. Securities companies should strengthen the real-time monitoring of high-frequency W88优德官方网站. If investors engaged in high-frequency W88优德官方网站 commit abnormal W88优德官方网站 behavior as mentioned in Section 3(1) of this briefing, securities companies should immediately take effective control and use disposal measures in accordance with the entrustment agreement to prevent the security of the Exchange’s systems or normal W88优德官方网站 orders from being affected.

(3) Different fee standards. The Exchanges may implement different fee standards for high-frequency W88优德官方网站 and publicize the corresponding fee standards. Securities companies should strengthen their fee management and ensure that the extra fee costs are borne by investors engaged in high-frequency W88优德官方网站.

VI. Management of Program W88优德官方网站 under the Stock Connect Regime

The Administrative Rules provide that "Investors who engage in program W88优德官方网站 in the securities market in mainland China through the Stock Connect regime between mainland China and Hong Kong shall, in accordance with the principle of fair treatment of domestic and foreign investors, be subject to reporting management and W88优德官方网站 monitoring regulations. Cross-border regulatory cooperation will be implemented regarding their abnormal W88优德官方网站 behavior". On this basis, the Implementation Rules further propose that northbound W88优德官方网站 investors under the Stock Connect regime should be regulated by referencing the Implementation Rules in terms of, such as, the reporting obligations, W88优德官方网站 behavior supervision and management of high-frequency W88优德官方网站, where the SSE or the SZSE stipulates otherwise, such provisions would prevail. It further clarifies the reporting path for those northbound W88优德官方网站 investors, i.e., they should report the required information to their Hong Kong brokers, through which the information will be submitted to the Hong Kong Stock Exchange and then to the Exchanges. If northbound W88优德官方网站 investors fail to report as required or engage in abnormal W88优德官方网站 behavior, the Exchanges will take measures through the regulatory cooperation with the Hong Kong counterparts in accordance with the arrangements under the Stock Connect regime.

VII. Supervision and Inspection Powers

The Administrative Rules and the Circulars have specified that the Exchanges may conduct on-site or off-site inspections of the institutions and individuals involved in program W88优德官方网站 based on their self-disciplinary needs. The Implementation Rules detail the circumstances when the Exchanges should strengthen their on-site or off-site inspections, including (i) the program W88优德官方网站 behavior is inconsistent with the reported information and the investor refuses to rectify; (ii) the program W88优德官方网站 causes significant abnormal fluctuations to the securities W88优德官方网站; (iii) the program W88优德官方网站 affects the normal securities W88优德官方网站 orders or causes significant abnormalities in the results of securities W88优德官方网站 due to unforeseen events; (iv) major technical failure in the program W88优德官方网站 information technical systems that may affect the security of the Exchange’s systems; (v) other circumstances as determined by the Exchange.

The Implementation Rules specify that if the relevant program W88优德官方网站 investors fail to fulfill their reporting obligations or the obligations to report significant changes as required, frequently engage in program W88优德官方网站 inconsistent with the reported information, engage in abnormal W88优德官方网站 behavior, or commit other violations, or if securities companies violate the provisions thereunder regarding their management responsibilities, such as the management of reporting, client program W88优德官方网站 behavior, W88优德官方网站 server hosting service, fees, or high-frequency W88优德官方网站, the Exchanges may take self-disciplinary measures or disciplinary sanctions in accordance with the regulations.

VIII. Pending Detailed Rules

According to the Implementation Rules, the Exchanges will release supporting rules in due course regarding:

(1) Specific information to be reported by program W88优德官方网站 investors when engaging in total return swap transactions with clients;

(2) Specific management requirements and fee standards for program W88优德官方网站 investors using the Exchanges’ value-added market data services;

(3) Specific fee standards for high-frequency W88优德官方网站;

(4) Specific information reporting requirements for program W88优德官方网站 investors under the Stock Connect regime[2];

(5) Abnormal W88优德官方网站 monitoring standards specifically for program W88优德官方网站.

We will continue to monitor the implementation of the Implementation Rules and their ancillary documents and share the latest developments with our clients.

[1] The Implementation Rules released by the BSE do not address W88优德官方网站 server co-location issues. They also propose different arrangements for the management of northbound program W88优德官方网站 investors under the Stock Connect regime.

[2] The SSE and the SZSE have announced the start of public consultation on the Guidelines on April 3, 2025. (Please refer to our Client Briefing dated April 9, 2025: The SSE and the SZSE Solicit Comments regarding Program W88优德官方网站 Reporting Guidelines under Stock Connect). The final version of the Guidelines has not yet formally issued.