China Securities Regulatory Commission issues rules standardizing penalties for unlawful securities transfers

The China Securities Regulatory Commission (CSRC) has issued rules standardizing how unlawful securities transfers are classified and penalized, including violations involving shareholder stake reductions. The rules establish graduated penalty criteria based on both the proportion and value of unlawful transfers and clarify liability for arrangements used to evade restrictions. The publication aligns with the commission’s plans outlined at the Financial Street Forum to refine penalty standards for unlawful stake reductions. The rules distinguish four categories: transfers during statutory restriction periods, breaches of holding period or sale timing requirements under administrative regulations or CSRC rules, violations involving sale quantities or disclosure, and unlawful transfers during acquisitions, including failures to suspend trading as required. Within the Securities Law’s fine ranges, the lighter penalty tier applies where the unlawful transfer proportion is below 2% or its value is below CNY 40 million. The heavier tier applies where the proportion is at least 5% and the value is at least CNY 500 million. Other cases fall within the ordinary tier, with specified circumstances allowing penalty adjustments. Applying substance over form, the rules provide for heavier punishment of arrangements that use transactions or instruments to circumvent stake reduction restrictions. Persons acting in concert may face administrative liability where they jointly commit violations or transfer securities and are at fault. Where a failure to suspend trading involves both unlawful sales and disclosure breaches that constitute independent violations, the two offenses must be assessed and penalized separately.