A Brief Commentary on M88 app Abnormal Program Trading Guidelines

Following M88 app release of M88 appAdministrative Rules for Program Trading in M88 app Securities Market (Trial)(Administrative Rules) by M88 app China Securities Regulatory Commission (CSRC) on May 15, 2024, M88 app Shanghai Stock Exchange (SSE), M88 app Shenzhen Stock Exchange (SZSE), and M88 app Beijing Stock Exchange (BSE) (collectively M88 app Exchanges) issued M88 app Detailed Implementation Rules for M88 app Management of Program Trading (Implementation Rules). M88 app Implementation Rules officially took effect on July 7, 2025. M88 app purpose of M88 app Implementation Rules is to implement M88 app regulatory requirements proposed in M88 app Administrative Rules and furM88 appr detail M88 app four categories of abnormal program trading behavior mentioned in M88 app Administrative Rules. M88 app following is a brief introduction to M88 app monitoring standards for abnormal program trading behavior.

I. Monitoring Standards

According to M88 app Administrative Rules, M88 app monitoring standards for abnormal program trading behavior are determined by M88 app securities exchanges. In M88 app Implementation Rules, M88 app Exchanges have specified M88 app 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., M88 app 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 M88 app day, i.e., multiple occurrences of order cancellations after placement within one second throughout a day, and M88 app proportion of order cancellations throughout M88 app day reaches a certain standard.

(3) Frequent lifting or suppressing refers to multiple occurrences of slight lifting or suppressing in M88 app price of one or more stocks within a day, i.e., M88 app price increase (or decrease) of a single stock within one minute, and M88 app 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 M88 app main indices of M88 app Exchange, i.e., an increase (or decrease) in M88 app Shanghai Composite Index or M88 app STAR Market 50 Index within one minute, and M88 app amount and proportion of investors’ discretionary buy (or sell) orders during that period reaches a certain standard.

(5) OM88 appr abnormal trading behavior that M88 app Exchange deems necessary to monitor closely.

Although M88 app Administrative Rules have not yet provided specific standards for M88 app standards referred to in items (1) to (4) above, and M88 app slight lifting or pressing referred to in item (3), M88 app Exchanges did state in M88 app media Q&A that M88 appy have formulated specific monitoring thresholds for M88 app four categories of abnormal program trading behavior in stock trading. M88 appse thresholds have been in trial operation since April 2024. Based on an observation of M88 app trial operation, since M88 app investors triggering M88 app monitoring thresholds are mainly quantitative private funds, securities brokers’ proprietary trading desks, and oM88 appr institutional investors, not retail individual investors, M88 app Exchanges believed that M88 app normal trading behavior of investors is not affected by M88 app implementation of such monitoring thresholds.

II. Specific Application

(1) It is strictly prohibited to split products to circumvent M88 app regulation of abnormal trading behavior

M88 app Implementation Rules require institutional investors, such as public or private fund managers or QFIs (Qualified Foreign Investors), who engage in program trading at M88 app product level, not to circumvent M88 app regulation of abnormal trading behavior through M88 app splitting of products. This is aimed at achieving look-through supervision based on M88 app product level. According to M88 app Exchanges’ trading rules, M88 app monitoring of abnormal trading behavior by M88 app Exchanges will also cover M88 app consolidation monitoring of individual or multiple ordinary securities accounts, margin securities accounts, and oM88 appr suspected related securities accounts (or groups of accounts) opened in M88 app name of M88 app investor or controlled by M88 app same investor.

In March 2024, M88 app SSE and M88 app 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 M88 app stock index and severely affected normal trading order, M88 appreby constituting abnormal trading behavior. M88 appy publicly condemned M88 app manager, reported M88 app matter to M88 app CSRC, and recorded M88 app misconduct in M88 app integrity files of M88 app securities and futures market.

In March 2025, a similar case occurred on M88 app BSE. M88 app Exchange identified M88 app abnormal trading behavior of price manipulation by a private fund account and a suspected related securities account during a specific period of time. M88 app BSE undertook self-disciplinary measures such as regulatory attention, issued warning letters, suspended M88 app trading of M88 app securities account, and imposed disciplinary sanctions by restricting trading of M88 app securities account for one month. M88 app misconduct was also recorded in M88 app integrity files of M88 app securities and futures market.

Institutional investors are advised to adhere to M88 app principles of M88 app above-mentioned look-through supervision to avoid violating M88 app regulations for abnormal trading behavior. It is important to note that in M88 app cases mentioned above, M88 app consequences for violating M88 app regulation of abnormal trading behavior were limited to self-disciplinary measures and disciplinary sanctions by M88 app Exchanges. However, M88 app relevant misconduct was recorded in M88 app integrity files of M88 app securities and futures market, which can significantly impact M88 app reputation of M88 app related private fund managers and potentially have adverse effects on M88 appir future business development.

According to M88 app Measures for M88 app Supervision and Administration of Integrity in M88 app Securities and Futures Markets, once investors have been recorded in M88 app integrity files of M88 app securities and futures market for violations such as abnormal trading behavior, M88 appy will face various restrictions. Generally, M88 app validity period for dishonest information in M88 app 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, M88 app records may affect investors in M88 app following ways: 1) M88 appy may be required to provide additional written explanations when applying for administrative permits from M88 app CSRC and its local offices; 2) M88 appy 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 oM88 appr market industry organizations; 3) M88 app CSRC and its local offices may conduct targeted on and off-site inspections, or adjust M88 app frequency and content of on-site inspections as appropriate; 4) securities brokers may decide wheM88 appr to handle customer account opening and margin trading business based on M88 app customer’s integrity files, or determine and adjust credit limits.

(2) Regulatory Discretion

M88 app Implementation Rules emphasize that situations where trading behavior is close to M88 app threshold and involves multiple instances of M88 app same type of trading behavior, should also be included in M88 app regulatory scope. In oM88 appr words, even if M88 app trading behavior of program trading investors does not reach M88 app monitoring thresholds mentioned above, if it is close to M88 app threshold and involves multiple instances of M88 app same type of trading behavior, M88 app Exchange may still classify it as abnormal trading behavior or require securities brokers to closely monitor and pay special attention to M88 appse activities.

Although M88 app criteria for determining 'close' and 'multiple instances' is unclear, we believe that M88 app 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 M88 app monitoring process of abnormal trading behavior that may affect M88 app security of M88 app exchange system or disrupt normal trading order in M88 app trading of bonds, funds, depositary receipts, and oM88 appr non-equity securities, M88 app Exchanges can focus on monitoring based on M88 app standards mentioned above. M88 appy can also adjust M88 appse standards as needed for self-regulatory purposes.

M88 app 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 oM88 appr securities trading, such as ETFs, M88 app trading mechanisms may differ, potentially making M88 app above standards inapplicable. We anticipate that M88 app Exchanges will establish separate abnormal program trading monitoring thresholds for non-equity securities.

(4) Application under Stock Connect

M88 app Implementation Rules adhere to M88 app principle of equal treatment for domestic and foreign investors and require Stock Connect investors to follow M88 app same trading monitoring standards as mainland investors. Regarding reporting entities for program trading, Stock Connect investors are required to report at M88 app BCAN level. We believe that M88 app regulatory authorities will furM88 appr refine M88 app operational arrangements for monitoring abnormal program trading by Stock Connect investors to implement M88 app principle of equal treatment for domestic and foreign investors.

III. Legal Consequences

According to M88 app Implementation Rules and M88 app relevant exchange business rules, if investors engage in program abnormal trading, M88 app Exchange may take M88 app following measures:

(1) M88 app Exchange may take self-disciplinary measures such as giving warnings, conducting regulatory talks, requiring M88 app submission of compliance commitment letters, suspending or restricting account trading, or take disciplinary sanctions such as making public condemnation, and record M88 appm in M88 app integrity files of M88 app securities and futures market. If suspected of illegal activity, M88 app Exchange will also report to M88 app 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, M88 app Exchange may require M88 appir securities brokers to suspend M88 appir use of exchange server host co-lo resources.

(3) If program trading investors are subject to trading restrictions due to abnormal trading behavior, M88 app Exchange may, as appropriate, report to M88 app CSRC’s local offices, M88 app Securities Association of China and M88 app Asset Management Association of China, and ask for coordination to undertake measures such as on-site inspections, interviews, and reminders.

M88 app Implementation Rules specify that in M88 app case of abnormal trading behavior occurring among program trading investors engaged in high-frequency trading, M88 app Exchanges may implement stricter and more severe self-regulatory measures as prescribed and require securities brokers to enhance M88 app management of client trading behavior.

IV. Our Observations

Although M88 app Implementation Rules have taken effect, details for M88 appir application still need furM88 appr clarification. Meanwhile, under M88 app 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 M88 app Exchanges’ Implementation Rules adopt substantially M88 app same standards for identifying abnormal program trading behavior, we focus our analysis on M88 app provisions of M88 app SSE’s Implementation Rules in this briefing.

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