2025.09.25 XIE, Qing (Natasha)、ZHANG, Chi (Austin)、LI,Muzhi
Following the release of the Administrative Rules for Program Trading in the Securities Market (Trial) (Administrative Rules) by the China Securities Regulatory Commission (CSRC) on May 15, 2024, the Shanghai Stock Exchange (SSE), the Shenzhen Stock Exchange (SZSE), and the Beijing Stock Exchange (BSE) (collectively the Exchanges) issued the Detailed Implementation Rules for the Management of Program Trading (Implementation Rules). The Implementation Rules officially took effect on July 7, 2025. The purpose of the Implementation Rules is to implement the regulatory requirements proposed in the Administrative Rules and further detail the four categories of abnormal program trading behavior mentioned in the Administrative Rules. The following is a brief introduction to the monitoring standards for abnormal program trading behavior.
I. Monitoring Standards
According to the Administrative Rules, the monitoring standards for abnormal program trading behavior are determined by the securities exchanges. In the Implementation Rules, the Exchanges have specified the specific constitutive elements of four types of abnormal trading behavior1: abnormal instantaneous order placements, frequent instantaneous order cancellations, frequent lifting or suppressing, and large-volume order executions within a short period of time.
(1) Abnormal instantaneous order placements refer to large numbers 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 refer to frequent rapid order cancellations after placement within a day, with a high proportion of order cancellations throughout the day, i.e., multiple occurrences of order cancellations after placement within one second throughout a day, and the proportion of order cancellations throughout the day reaches a certain standard.
(3) Frequent lifting or suppressing 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 (or decrease) of a single stock within one minute, and the proportion of investors’ trading volume during that period, both reaching a certain standard, which occurs multiple times within a day.
(4) Large-volume order executions within a short period of time refers to extremely large buy (or sell) amounts within a short time period, intensifying fluctuations in the main indices of the Exchange, i.e., an increase (or decrease) in the Shanghai Composite Index or the STAR Market 50 Index within one minute, and the amount and proportion of investors’ discretionary buy (or sell) orders during that period reaches a certain standard.
(5) Other abnormal trading behavior that the Exchange deems necessary to monitor closely.
Although the Administrative Rules have not yet provided specific standards for the standards referred to in items (1) to (4) above, and the slight lifting or pressing referred to in item (3), the Exchanges did state in the media Q&A that they have formulated specific monitoring thresholds for the four categories of abnormal program trading behavior in stock trading. These thresholds have been in trial operation since April 2024. Based on an observation of the trial operation, since the investors triggering the monitoring thresholds are mainly quantitative private funds, securities brokers’ proprietary trading desks, and other institutional investors, not retail individual investors, the Exchanges believed that the normal trading behavior of investors is not affected by the implementation of such monitoring thresholds.
II. Specific Application
(1) It is strictly prohibited to split products to circumvent the regulation of abnormal trading behavior
The Implementation Rules require institutional investors, such as public or private fund managers or QFIs (Qualified Foreign Investors), who engage in program trading at the product level, not to circumvent the regulation of abnormal trading behavior through the splitting of products. This is aimed at achieving look-through supervision based on the product level. According to the Exchanges’ trading rules, the monitoring of abnormal trading behavior by the Exchanges will also cover the consolidation monitoring of individual or multiple ordinary securities accounts, margin securities accounts, and other suspected related securities accounts (or groups of accounts) opened in the name of the investor or controlled by the same investor.
In March 2024, the SSE and the SZSE noticed that a private fund manager managing multiple product accounts had engaged in selling large volumes of Shanghai and Shenzhen stocks within a short period of time. This led to a rapid decline in the stock index and severely affected normal trading order, thereby constituting abnormal trading behavior. They publicly condemned the manager, reported the matter to the CSRC, and recorded the misconduct in the integrity files of the securities and futures market.
In March 2025, a similar case occurred on the BSE. The Exchange identified the abnormal trading behavior of price manipulation by a private fund account and a suspected related securities account during a specific period of time. The BSE undertook self-disciplinary measures such as regulatory attention, issued warning letters, suspended the trading of the securities account, and imposed disciplinary sanctions by restricting trading of the securities account for one month. The misconduct was also recorded in the integrity files of the securities and futures market.
Institutional investors are advised to adhere to the principles of the above-mentioned look-through supervision to avoid violating the regulations for abnormal trading behavior. It is important to note that in the cases mentioned above, the consequences for violating the regulation of abnormal trading behavior were limited to self-disciplinary measures and disciplinary sanctions by the Exchanges. However, the relevant misconduct was recorded in the integrity files of the securities and futures market, which can significantly impact the reputation of the related private fund managers and potentially have adverse effects on their future business development.
According to the Measures for the Supervision and Administration of Integrity in the Securities and Futures Markets, once investors have been recorded in the integrity files of the securities and futures market for violations such as abnormal trading behavior, they will face various restrictions. Generally, the validity period for dishonest information in the integrity files is three years, while information related to administrative penalties, market bans, criminal penalties, court judgements on significant tort liability or contractual liability resulting from securities and futures violations has a validity period of five years. During this time, the records may affect investors in the following ways: 1) they may be required to provide additional written explanations when applying for administrative permits from the CSRC and its local offices; 2) they may be required to provide additional written explanations when handling registrations and filings with securities and futures exchanges, industry associations, depository and settlement institutions, and other market industry organizations; 3) the CSRC and its local offices may conduct targeted on and off-site inspections, or adjust the frequency and content of on-site inspections as appropriate; 4) securities brokers may decide whether to handle customer account opening and margin trading business based on the customer’s integrity files, or determine and adjust credit limits.
(2) Regulatory Discretion
The Implementation Rules emphasize that situations where trading behavior is close to the threshold and involves multiple instances of the same type of trading behavior, should also be included in the regulatory scope. In other words, even if the trading behavior of program trading investors does not reach the monitoring thresholds mentioned above, if it is close to the threshold and involves multiple instances of the same type of trading behavior, the Exchange may still classify it as abnormal trading behavior or require securities brokers to closely monitor and pay special attention to these activities.
Although the criteria for determining 'close' and 'multiple instances' is unclear, we believe that the Exchanges may exercise regulatory discretion as needed to invoke this provision and take self-disciplinary measures in special market situations.
(3) Application to Non-equity Securities
In the monitoring process of abnormal trading behavior that may affect the security of the exchange system or disrupt normal trading order in the trading of bonds, funds, depositary receipts, and other non-equity securities, the Exchanges can focus on monitoring based on the standards mentioned above. They can also adjust these standards as needed for self-regulatory purposes.
The four categories of abnormal trading behavior – abnormal instantaneous order placements, frequent instantaneous order cancellations, frequent lifting or suppressing, and large-volume order executions within a short period of time – are mainly targeted at abnormal stock trading. For other securities trading, such as ETFs, the trading mechanisms may differ, potentially making the above standards inapplicable. We anticipate that the Exchanges will establish separate abnormal program trading monitoring thresholds for non-equity securities.
(4) Application under Stock Connect
The Implementation Rules adhere to the principle of equal treatment for domestic and foreign investors and require Stock Connect investors to follow the same trading monitoring standards as mainland investors. Regarding reporting entities for program trading, Stock Connect investors are required to report at the BCAN level. We believe that the regulatory authorities will further refine the operational arrangements for monitoring abnormal program trading by Stock Connect investors to implement the principle of equal treatment for domestic and foreign investors.
III. Legal Consequences
According to the Implementation Rules and the relevant exchange business rules, if investors engage in program abnormal trading, the Exchange may take the following measures:
(1) The Exchange may take self-disciplinary measures such as giving warnings, conducting regulatory talks, requiring the submission of compliance commitment letters, suspending or restricting account trading, or take disciplinary sanctions such as making public condemnation, and record them in the integrity files of the securities and futures market. If suspected of illegal activity, the Exchange will also report to the CSRC for investigation and enforcement.
(2) For program trading investors who have been subject to trading restrictions post-trading due to multiple occurrences of abnormal trading behavior within one month, the Exchange may require their securities brokers to suspend their use of exchange server host co-lo resources.
(3) If program trading investors are subject to trading restrictions due to abnormal trading behavior, the Exchange may, as appropriate, report to the CSRC’s local offices, the Securities Association of China and the Asset Management Association of China, and ask for coordination to undertake measures such as on-site inspections, interviews, and reminders.
The Implementation Rules specify that in the case of abnormal trading behavior occurring among program trading investors engaged in high-frequency trading, the Exchanges may implement stricter and more severe self-regulatory measures as prescribed and require securities brokers to enhance the management of client trading behavior.
IV. Our Observations
Although the Implementation Rules have taken effect, details for their application still need further clarification. Meanwhile, under the Stock Connect scheme, monitoring abnormal trading behavior also requires detailed interpretation. Institutional investors are advised to closely monitor regulatory developments and enforcement practices.
1. Given that the Exchanges’ Implementation Rules adopt substantially the same standards for identifying abnormal program trading behavior, we focus our analysis on the provisions of the SSE’s Implementation Rules in this briefing.
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