Regulations on Share Reduction by Controlling Shareholders of Listed Companies and on the Management of Shares Held by Directors, Supervisors, and Senior Management and Their Changes

The main contents of the new share reduction regulations for shareholders are as follows: (1) Strictly standardizing share reduction by major shareholders: clarifying that controlling shareholders and actual controllers may not reduce shares via centralized bidding or block trading under circumstances such as share price falling below issue price or net asset value, or failure to meet dividend distribution requirements—except where the shares being reduced were acquired via centralized bidding, or where a reduction plan has already been disclosed prior to the emergence of such circumstances; adding a pre-disclosure obligation for major shareholders before conducting block trading reductions; requiring一致行动人 (persons acting in concert) of major shareholders and controlling shareholders to jointly comply with share reduction requirements; optimizing prohibited circumstances for share reduction by major shareholders, explicitly prohibiting controlling shareholders and actual controllers from reducing shares when either the listed company or they themselves have committed violations or illegal acts; and generally prohibiting major shareholders from reducing shares when they themselves have committed violations or illegal acts. (2) Effectively preventing circumvention of reduction restrictions: clarifying that, following share reductions arising from divorce, termination of legal or unincorporated entities, or corporate spin-offs, relevant parties must continue jointly complying with share reduction restrictions—unless otherwise stipulated by laws, administrative regulations, or the China Securities Regulatory Commission (CSRC); clarifying that all parties involved must continue jointly complying with share reduction restrictions for six months after dissolution of concerted action relationships; clarifying that transferees under agreement-based transfers must lock up acquired shares for six months, and transferors who lose their status as major shareholders must continue complying with relevant restrictions for six months; clarifying that judicial compulsory enforcement, margin financing and securities lending default disposals, etc., shall comply with the Measures for the Administration of Share Reduction depending on the method of reduction, and specifying the timing for pre-disclosure in cases of passive disposal through judicial compulsory enforcement (i.e., disclosure must be made within two trading days after receipt of the relevant enforcement notice); prohibiting major shareholders from short-selling via securities lending or participating in derivative transactions with the company’s own shares as underlying assets, and prohibiting restricted shares from being lent out via securities lending or short-sold by holders of restricted shares. New regulations on changes in holdings by directors, supervisors, and senior management (DSSMs): (1) Standardizing share reduction behavior: relocating the provisions of Articles 7 and 8 of the Measures for the Administration of Share Reduction to the Rules on Changes in Shareholdings, and aligning with the reform direction of the Measures for the Administration of Share Reduction, explicitly prohibiting DSSMs from reducing shares under circumstances including their own violations or illegal acts, violations or illegal acts by the listed company, mandatory delisting due to serious violations, or failure to fully pay fines or confiscations; clarifying that DSSMs must make pre-disclosure before reducing shares via centralized bidding or block trading; and clarifying that both parties must continue jointly complying with relevant share reduction restrictions following divorce. (2) Clarifying share transfer requirements during tenure: the number of shares transferred annually by DSSMs via centralized bidding, block trading, agreement-based transfers, etc., may not exceed 25% of the total number of shares they hold in the company, except where share changes result from judicial compulsory enforcement, inheritance, bequest, or lawful division of property.

Frequently Asked Questions Regarding Share Reduction by Listed Companies

Question 8 in the 'Q&A with Journalists' clarifies that 'for multiple shareholders constituting persons acting in concert, their shareholdings shall be aggregated and treated as a single entity subject to the detailed rules governing reduction ratios and information disclosure.' Under this interpretation, persons acting in concert with a major shareholder must pre-disclose their reduction plans 15 trading days prior to implementation. 9. Regarding Total Share Capital (1) What calculation standards apply respectively to the total number of company shares, the shareholding ratio of major shareholders, and the reduction ratio? (Shanghai Main Board) According to Question 16 in the 'Q&A on Issues', when calculating the total number of company shares, A-shares, B-shares, and overseas-listed shares (including H-shares, etc.) shall be aggregated. When calculating the shareholding ratio of major shareholders, their holdings of A-shares, B-shares, and overseas-listed shares (including H-shares, etc.) shall also be aggregated. However, when calculating the number and ratio of shares reduced by shareholders as stipulated in the Detailed Rules for the Reduction of Shares by Shareholders and Directors, Supervisors, and Senior Management of Shanghai Stock Exchange Listed Companies, only the number of A-shares reduced shall be counted. (2) How is the reduction ratio calculated if the total share capital changes during the reduction period? Within the time interval specified in the pre-disclosure announcement for share reduction, if the listed company implements share bonus issues, share splits, rights issues, or share repurchases, the number of shares a major shareholder may reduce shall be determined based on the ratio of the planned reduction quantity to the total share capital stated in the pre-disclosure announcement, and the actual number of reducible shares shall be adjusted accordingly in light of share bonus issues, etc. 10. Other Applicable Issues (1) Does the restriction “not exceeding 50% within 12 months” apply to non-publicly offered shares reduced via block trading? Article 4, Paragraph 2 of the Detailed Rules explicitly states: “When shareholders reduce non-publicly offered shares of listed companies via centralized bidding, within twelve months after expiration of the share transfer restriction period, the number of shares reduced may not exceed 50% of the non-publicly offered shares held by them.” This provision does not impose restrictions on reductions of non-publicly offered shares via block trading by specific shareholders; therefore, shareholders reducing non-publicly offered shares via block trading are not subject to the aforementioned “not exceeding 50% within 12 months” restriction. (2) How do the provisions of the Detailed Rules apply to share transfers arising from judicial compulsory enforcement or enforcement of equity pledge agreements? If judicial compulsory enforcement or enforcement of an equity pledge agreement proceeds via centralized bidding, the被执行人 (judgment debtor) and pledgor must comply not only with applicable reduction ratio requirements but also with pre-disclosure obligations for share reduction. When major shareholders or DSSMs of listed companies pledge equity, they must promptly fulfill information disclosure obligations and closely monitor changes in equity pledge risks; if pledged shares are expected to be liquidated, they must pre-disclose the related reduction plan 15 trading days in advance. Failure by major shareholders or DSSMs to fulfill information disclosure obligations does not affect judicial authorities or pledgees selling shares via centralized bidding in accordance with legal provisions and contractual agreements. (3) May major shareholders reduce shares during the delisting consolidation period if the listed company is simultaneously under investigation by the CSRC for information disclosure violations? Article 9 of the Detailed Rules specifies circumstances under which major shareholders may not reduce shares, explicitly stating that major shareholders may not reduce shares while the listed company is under investigation by the CSRC. As long as the listed company has not yet completed delisting, major shareholders’ share reductions remain subject to the relevant provisions of the Detailed Rules.

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