[Compliance Insight] What is passive share reduction, and how should it be disclosed?

Case Summary: On February 20, 2020, Mr. Gong disclosed through the listed company a 'Notice on Pre-Disclosure of Major Shareholder’s Share Reduction Plan', announcing his intention to reduce up to 21.9419 million shares—6% of the company’s total share capital—via block trades and centralized bidding transactions within six months starting fifteen trading days after the notice’s publication. Between February 21 and March 12, 2020, Mr. Gong’s pledged shares were forcibly liquidated, resulting in a cumulative reduction of 3.4038 million shares—0.93% of the company’s total share capital—valued at RMB 37.3364 million, via centralized bidding transactions. This reduction occurred less than fifteen trading days after the pre-disclosure date. The Shenzhen Stock Exchange issued a formal reprimand against Mr. Gong. (2) Equity Change Reaching 1% The newly effective Securities Law stipulates: After an investor holds—or jointly holds with others through agreements or other arrangements—5% or more of a listed company’s issued voting shares, any increase or decrease of 1% in the proportion of such voting shares held must be notified to the listed company and publicly announced the day following the occurrence of such fact. If a major shareholder’s passive reduction reaches 1%, must disclosure still comply with the above rule? The regulation emphasizes that disclosure is required whenever the proportion of shares held in a listed company increases or decreases by 1%—regardless of whether the change results from active or passive reduction. This is a general principle applying to all major shareholders’ equity changes. Therefore, Xiao Ni believes that even a passive reduction reaching 1% triggers the disclosure obligation. Market practice confirms this view, as evidenced by related public announcements. (3) Equity Change Reaching 5% Article 13 of the Measures for the Administration of Acquisitions of Listed Companies provides: After an investor and its concerted parties hold 5% or more of a listed company’s issued shares, any increase or decrease of 5% or more in their equity interest—acquired through securities exchange transactions—must be reported and announced pursuant to the preceding paragraph. From the date such fact occurs until three days after the announcement, no further trading in the listed company’s shares may occur, except where otherwise permitted by the China Securities Regulatory Commission (CSRC). This scenario is analogous to the 1% case: the rule hinges solely on whether the proportion of equity interest increases or decreases by 5%. Accordingly, the treatment aligns with point (2) above: if a passive reduction alone—or combined with active reductions—reaches or exceeds 5%, the shareholder must file an equity change report. In practice, many shareholders err here—for instance, failing to recognize that passive dilution or reduction, when aggregated with active reductions, has crossed the 5% threshold, thereby neglecting timely information disclosure and violating regulations. Just last week, such a case surfaced in the market; let’s examine it together! Case Case Summary: On December 2, 2020, a major shareholder of a listed company, Mr. Yang, disclosed a 'Concise Equity Change Report' through the listed company. It stated that between March 21, 2019 and November 30, 2020, Mr. Yang actively reduced 34.3442 million shares; and between February 12, 2019 and December 1, 2020, his shareholding was further diluted due to conversions of the company’s convertible bonds into shares and the listing of restricted shares.

How should we view the fact that BlackRock and Vanguard Group are among the top five shareholders of nearly every major company? Can they influence global corporate decision-making?

As global mega-asset management firms, BlackRock and Vanguard Group hold substantial stakes in numerous major companies, thereby exerting a certain degree of influence over corporate decision-making. First, these firms manage enormous asset pools and operate across broad domains—including equities, bonds, cash management, and alternative investments. Not only do they offer investors diversified investment options, but they can also influence corporate decisions through proprietary research and analysis, as well as direct communication and negotiation with company management. Second, as institutional investors, BlackRock and Vanguard typically hold shares in multiple companies simultaneously, enabling them to shape decisions across their portfolio. Institutional investors generally possess professional investment teams and extensive experience, allowing them to make timely decisions responsive to market shifts and corporate performance—thereby impacting corporate results. However, although BlackRock and Vanguard hold large stakes, they cannot unilaterally dictate global corporate decision-making. Corporate decisions are typically shaped by multiple factors—including market demand, competitive dynamics, and policy and regulatory frameworks.

Vanguard Reports 11.9 Million Air Products Shares in Above-5% Passive Stake

1 day ago

Vanguard Portfolio Management disclosed a 5.36% passive stake in Air Products & Chemicals, holding over 11.9 million shares as of September 30, 2026. The Schedule 13G filing reflects holdings across various Vanguard affiliates and client accounts.

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