Giant Network recently announced that the platform actually controlled by Shi Yuzhu reduced its shareholding in the company, cashing out approximately 500 million yuan to repay bank loans. This move quickly drew market attention, not only because of Shi Yuzhu's status as a star entrepreneur, but also because major shareholder reductions have always been a sensitive topic in the A-share market. From a legal perspective, reductions by major shareholders of listed companies are by no means a simple matter of "selling stocks," as they involve multiple legal constraints including information disclosure, trading rules, and investor protection. This article will, from a lawyer's perspective, sort out the legal framework for major shareholder reductions, analyze the compliance points of this incident, and provide practical risk warnings for ordinary investors.

Statutory Rules for Major Shareholders' Reduction of Holdings: Which Red Lines Cannot Be Crossed

According to the Securities Law and the share reduction rules of the Shanghai and Shenzhen Stock Exchanges, major shareholders of listed companies (holding 5% or more) and directors, supervisors, and senior executives must comply with strict proportion limits and information disclosure obligations when reducing their holdings. Specifically, when major shareholders reduce holdings through centralized bidding transactions, the reduction shall not exceed 1% of the company's total shares within any consecutive 90 days; when reducing through block trades, it shall not exceed 2% within any consecutive 90 days, and the transferee must lock up the shares for 6 months.

If the platform actually controlled by Shi Yuzhu uses centralized auction or block trading for this reduction, it must ensure compliance with the above proportion limits. If the reduction plan is not announced 15 trading days in advance, or if the reduction volume exceeds the limit, it may constitute illegal reduction. In addition, if a major shareholder holds 5% or more of the company's shares before the reduction, they must also fulfill the obligation to disclose changes in equity for every 5% change after reduction.

In practice, many major shareholders cross the line due to an incomplete understanding of the rules or operational negligence. For example, in 2023, a shareholder of a listed company was placed on file by the CSRC for failing to pre-disclose a share reduction plan, and was ultimately fined and ordered to buy back the shares reduced in violation of regulations. Lawyers remind that before major shareholders initiate share reductions, they should have a securities legal counsel specifically review the reduction plan to ensure compliance.

Legal Significance of the Use of Funds from Share Reduction: Does Loan Repayment Affect Compliance?

This reduction announcement clearly states that the funds are used to repay bank loans. From a legal perspective, the use of the reduction funds is not a statutory requirement for the compliance of the share reduction, but it may affect market interpretation and regulatory attention.

If a major shareholder itself or its affiliated enterprises face high pledge ratios or debt pressure, reducing holdings to cash out for loan repayment may be viewed as a signal to alleviate liquidity risk. In such cases, regulators may focus on examining whether the share reduction involves insider trading or the use of undisclosed information. According to the *Several Provisions on the Reduction of Shareholdings by Shareholders, Directors, Supervisors, and Senior Executives of Listed Companies*, major shareholders must not reduce their holdings under the following circumstances: during the period they are under investigation for suspected securities or futures violations or crimes, or within six months after an administrative penalty decision has been made.

In addition, if a major shareholder has undisclosed material debts or litigation before reducing holdings, it may violate the disclosure requirements for "major events" under the Measures for the Administration of Information Disclosure of Listed Companies. Lawyers advise that major shareholders should ensure that the content of the reduction announcement is truthful, accurate, and complete, especially regarding the description of the use of funds, so as

The Impact of Shareholding Reduction on Small and Medium Investors and Legal Protection

Major shareholders reducing their holdings often trigger stock price fluctuations, and small and medium investors bear the brunt. From a legal perspective, investors are not merely passive victims. If there are violations in the reduction process, investors can seek recourse through the following channels:

First, if a major shareholder fails to disclose a share reduction plan in accordance with regulations or makes misrepresentations, investors may, pursuant to Article 85 of the Securities Law, require them to bear civil liability for compensation. For example, the Supreme People's Court clarified in the "Founder Technology" case that the causal relationship between misrepresentation and investor losses can

Second, if the reduction of holdings constitutes insider trading or market manipulation, investors may report to the CSRC and may file civil claims after criminal judgment.

Third, for the sharp drop in stock prices caused by share reductions, investors should preserve evidence such as transaction records and screenshots of announcements, and promptly follow the progress of the CSRC's case filing investigation. Lawyers remind that the limitation period for rights protection is three years, and it must be carried out under the guidance of professional lawyers to avoid losing the case due to insufficient evidence.

Legal Practice Advice: Two-Way Compliance Insights for Major Shareholders and Investors

For major shareholders of listed companies, three things must be done before reducing holdings: First, verify their own shareholding ratio and the reduction window period to ensure compliance with the requirements of the "Measures for the Administration of Share Reduction by Shareholders of Listed Companies"; Second, formulate a reduction plan in advance and fully disclose it, including the reasons for the reduction, quantity, time range, price range, etc.; Third, carefully assess whether the reduction may trigger market misunderstandings, and if necessary, communicate with the stock exchange in advance.

For ordinary investors, when faced with announcements of major shareholder share reductions, they should rationally analyze the reasons for the reduction and the company's fundamentals rather than blindly following the trend. If there is suspicion of illegal reduction, they can report it via the CSRC's 12386 hotline, or commission a lawyer to file a claim for securities misrepresentation compensation.

Guangdong Zhiming Law Firm has深耕 in securities and capital markets legal practice, having provided professional services such as compliance reviews for share reductions and claims for misrepresentation to multiple listed companies and investors. If you need legal support in areas such as major shareholder share reductions or securities rights protection, please feel free to contact us. We will resolve your concerns from a professional perspective.