Public Comment on New LOF Delisting Rules: ~25 Billion Yuan Worth of Products May Be Terminated from Listing
Miles Bennett
Shanghai and Shenzhen exchanges on Aug 7 proposed new rules to delist three categories of LOFs, affecting roughly RMB 25 billion in on-exchange assets; the move targets persistent premium distortions and illiquidity, and is set to further cement ETFs' dominance in on-exchange fund markets.
Which LOFs face delisting?
The draft splits LOFs into three buckets: commodity-futures LOFs and QDII LOFs must delist by Dec 31, 2027 at the latest; any LOF whose on-exchange NAV stays below RMB 10 million for 60 consecutive trading days must also exit.
This means → it is not a blanket sweep but three separate trigger lines, each with its own timeline.
There are currently 391 LOFs on the market with a combined on-exchange size of about RMB 54.9 billion. CITIC Securities estimates roughly RMB 25 billion — nearly half — falls within the delisting scope.
Why single out these categories?
Commodity-futures LOFs and QDII LOFs face structural supply constraints — futures position limits and tight QDII foreign-exchange quotas restrict new subscriptions, so on-exchange supply cannot keep up with demand, driving steep premiums.
In plain terms = no new units can flow in, so the on-exchange pool behaves like a one-way valve — prices get bid far above actual net asset value.
The data bears this out: LOFs with suspended or restricted subscriptions total about RMB 34.4 billion, or 62.8% of all LOF assets; among QDII LOFs alone, 93% of assets sit in funds with subscriptions frozen.
Small LOFs suffer a different illness — near-zero liquidity. 104 LOFs have on-exchange assets under RMB 10 million, with average daily turnover of just RMB 10,000–130,000; LOFs above RMB 100 million average RMB 56.23 million per day — a gap of over 100×.
What risk warnings apply during the transition?
Commodity-futures LOFs and QDII LOFs will carry an **"\*" prefix** in their on-exchange ticker names from the day the rules take effect, flagging imminent delisting.
Once a small LOF's on-exchange NAV stays below RMB 10 million for 40 consecutive trading days, its manager must issue a daily risk alert starting the next day.
This means → the regulator has built a countdown mechanism: warning label first, formal delisting procedure second, with a buffer window in between.
How big is the hit for ordinary investors?
Delisting ≠ fund liquidation — the fund itself keeps running, and off-exchange subscriptions and redemptions are unaffected. Investors can still hold via off-exchange channels.
The ~RMB 25 billion involved is tiny against the nearly RMB 40 trillion public-fund industry. Small LOFs account for over 70% of the products facing delisting by count, yet only about 2% by on-exchange assets.
In plain terms = the vast majority of the money does not vanish — it simply moves from on-exchange to off-exchange, switching trading channels.
What happens to arbitrage players and the ETF market?
Arbitrage opportunities in QDII and commodity-futures LOFs will narrow steadily through end-2027; pockets of opportunity may linger during the transition, but the window is compressing.
Equity LOFs and index LOFs are not in scope — their on-exchange premium/discount arbitrage mechanism stays intact.
This reflects the regulator's intent to "close the side door, keep the front door open" — premium-prone products exit while normal arbitrage ecology is untouched, and ETFs are set to further consolidate their dominance in the on-exchange fund market.
Investor demand for commodity and overseas exposure is expected to migrate toward off-exchange QDII funds, cross-border ETFs, and ETF feeder funds.
Content is for reference only, not financial advice.