Posted inRegulation

China to loosen short-term trading rules for foreign mutual funds

Foreign funds will now be on a par with domestic funds.

The China Securities Regulatory Commission (CSRC) is drafting proposals to exempt certain foreign mutual funds from short-term trading rules and regulations that prevent insider trading, according to mainland Chinese media reports.

Currently, there is a cap for individual foreign investors allowing them to hold no more than 10% of the total shares of a listed company, while all foreign investors cannot hold more than 30% of a listed company’s total shares.

Going forward, foreign public funds will be able to calculate the amount of securities held by product instead, although it is unclear what the new cap will be.

The second amendment will be exempting foreign funds from short-term trading restrictions when they trade under the Hong Kong-Shenzhen Stock Connect and Hong Kong-Shanghai Stock Connect systems.

According to current regulations, foreign funds holding more than 5% of a China listed company must give up their profits from short-term trading, which is defined as within six months. Onshore public funds and social security funds do not face similar restrictions.

The latest move is in a bid to further open up the country’s capital markets to overseas investors, facilitate foreign investment in the A-share market and better ensure the operational efficiency of the Stock Connect schemes.

Previously, the CSRC has relaxed restrictions on foreign fund managers by abolishing the ownership restrictions for domestic fund management companies.

In 2021, BlackRock China New Horizon Mixed Securities Investment Fund became the first mutual fund launched in China by a foreign asset manager.

According to the CSRC, as of the end of September, A-share ownership by foreign investors stood at Rmb2.77trn ($385bn), accounting for 4.35% of the total market capitalisation.

The cumulative net inflow into the A-share market through the Stock Connect schemes has exceeded Rmb52bn since the beginning of the year, according to CSRC figures.

Part of the Bonhill Group.