In April 2024, the State Council issued the Opinions on Strengthening Regulation, Preventing Risks and Promoting the High-Quality Development of the Capital Market, introducing comprehensive measures to refine the share reduction regime. These include stricter regulation of major shareholders’ share disposals, effective prevention of indirect share reductions, and robust enforcement against all forms of unlawful share sales.
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Han Kun Law Offices
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E-mail: zhenyu.wang@hankunlaw.com
The rules specifically target shareholders holding more than 5% stakes and de facto controllers (collectively the major shareholders), aiming to protect investors’ lawful rights, maintain market order and support the long-term, stable development of the securities market.
In May 2024, the China Securities Regulatory Commission (CSRC) issued the Interim Measures for the Administration of Share Reduction by Shareholders of Listed Companies, with the Shanghai and Shenzhen stock exchanges simultaneously releasing supporting business rules. In the past year, these regulations have been revised and improved, further strengthening the framework governing major shareholders’ share reductions.
New rules
Upon the expiration of lock-up periods for major shareholders’ stakes in listed companies, such shareholders may typically reduce their holdings through centralised bidding, block trades or negotiated transfers. However, the following key rules must be observed during any disposal.
Prohibited disposals. Major shareholders are generally barred from reducing their holdings if they, or the listed company, are involved in serious legal or regulatory violations. Controlling shareholders and actual controllers are prohibited from selling shares via centralised bidding or block trades if the company’s share price falls below its issue price or net asset value, or if dividend standards are not met, unless a reduction plan has already been lawfully disclosed or otherwise permitted by the CSRC.
Restricted number of shares sold. Where major shareholders are permitted to reduce their holdings in a listed company, the following limits apply:
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- For centralised bidding, the total number of shares sold must not exceed 1% of the company’s total share capital within any consecutive three-month / 90-day period;
- For block trades, the total number of shares sold must not exceed 2% of the company’s total share capital within any consecutive three-month / 90-day period, while the transferee is prohibited from selling the acquired shares within six months of the transaction;
- For negotiated transfers, unless specific exceptions apply, a single transferee must acquire no less than 5% of the company’s total share capital, and is not permitted to sell the acquired shares within six months of the transfer.
Information disclosure. Under the current rules, major shareholders intending to reduce their holdings via centralised bidding or block trades must report and disclose their reduction plans to the stock exchange at least 15 trading days before the first sale. Each disclosed reduction period may not exceed three months.
Upon completion of the reduction plan, or within two trading days after the end of the reduction period, shareholders must report to the exchange and make a public announcement. Notably, compared with the rules in place before May 2024, there is now an added requirement for advance disclosure prior to block trades.
Under the Measures for the Administration of Takeovers of Listed Companies and supporting Securities Law Application Opinion No. 19, major shareholders must file disclosures whenever their share disposals reach specific ownership thresholds. The regulations mandate reporting at every whole percentage point reduction (1% intervals) and at each 5% increment of a company’s total issued shares.
The Securities Law Application Opinion No. 19, which came into force on 10 January 2025 and interprets articles 13 and 14 of the Measures for the Administration of Takeovers of Listed Companies, has shifted the reporting threshold from a “range-based approach” to a “fixed-increment system”. Under this revised framework, investors now need only monitor the specific ownership percentage levels at which disposals occur, rather than tracking incremental changes in shareholding proportions.
This refinement significantly enhances clarity for both investor comprehension and supervisory enforcement, while enabling more efficient market assimilation of material shareholder position changes.
Precautions
To avoid unlawful share reductions, major shareholders should pay particular attention to the following key considerations when selling shares in a listed company.
Restrictions. When planning to reduce holdings, major shareholders should carefully verify the classification of the shares to be sold, whether they remain subject to lock-up periods, any statutory restrictions on reductions, and any potential binding voluntary commitments that may affect the disposal.
Disclosure obligations. Major shareholders must file advance disclosure notices before initiating any share disposals through secondary markets. Throughout the reduction process, they remain obligated to disclose when their holdings cross whole percentage point thresholds (at each 1% increment) and major ownership milestones (every 5% reduction). The disposal must be formally concluded with a completion notice filed promptly after finishing the planned reduction.
Limits on number of shares sold. Major shareholders conducting share disposals through secondary markets must carefully calculate their permissible reduction volume prior to selling, while continually monitoring and updating their remaining disposal quota throughout the process to avoid exceeding permitted thresholds.
Others. Major shareholders with specific roles, such as directors or senior executives, are prohibited from reducing holdings during blackout periods. No reductions are permitted during periods when shareholding changes reach integer multiples of 5%. Short term trading should be avoided during the reduction and within six months after the reduction.
Since the implementation of new share reduction regulations one year ago, the capital markets have seen comprehensive adoption of the new National Nine Articles and effective execution of the “1+N” policy framework. These measures have significantly curbed improper share disposals by major shareholders, including both direct violations and regulatory arbitrage schemes.
The reforms have demonstrably improved market ecology while strengthening protections for investor rights. Adherence to share reduction regulations and lawful, compliant practices ultimately benefit all investors.
Wang Zhenyu is a partner at Han Kun Law Offices. He can be contacted by phone at +86 188 0000 6960 and by email at zhenyu.wang@hankunlaw.com
