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China Set to Ban Offshore Online Brokerages as Crackdown Widens

Firms such as Futu Holdings and UP Fintech Holding would be hit by block on mainlanders trading securities in US and Hong Kong

Futu Holdings listed on the Nasdaq in 2019. Photo: Futu


Chinese officials are planning to ban online brokerages such as Futu Holdings and UP Fintech Holding from offering offshore trading services to mainland clients, the latest development in a broad regulatory crackdown that has roiled a wide range of sectors over the past year.

On Friday, the China Securities Regulatory Commission (CSRC) issued a notice to prohibit mainland investors from trading A shares via Hong Kong brokers.

The Nasdaq-listed Chinese firms are two of the biggest players in the sector and a ban would block millions of retail investors in mainland China from trading securities easily in markets such as the US and Hong Kong.

Concerns over data security and capital outflows are driving the potential ban, sources said.

The looming restrictions come on the heels of a clampdown that has affected a broad scope of companies over the past year, in sectors ranging from technology to education and real estate.

Firms affected by the latest crackdown are likely to be notified of a ban in “the coming months”, said one of four sources who spoke with Reuters. All sources declined to be identified as they were not authorised to speak to media.

UP Fintech, known as Tiger Brokers, and Futu are both registered with the Securities and Futures Commission in Hong Kong but that permit does not extend to the mainland.

No mainland licence exists for online brokerages specialising in cross-border trades. “Shanghai and Shenzhen Stock Connect investors do not include mainland investors,” the CSRC said in its notice.

Futu, a $5.5 billion company by market value, said in a statement to Reuters it had been communicating with Chinese authorities but had not received any formal orders. It added that it was operating normally.

“Potential scrutiny of cross-border online broker business practices by the mainland regulator would likely put a damper on client acquisitions and client asset inflows,” Xie Yuan, an equity analyst at CCB International in Hong Kong, said.

About 40% of Futu’s clients have opened trading accounts with Chinese identity cards, with the remainder using US, Singapore and Hong Kong forms of identity.

Business Could Be Affected

“Mainlanders would be more hesitant to open an account or trade with Futu,” Xie added. “Overcoming this hesitancy could push up client acquisition costs and erode profit margins.”

Futu, which listed on the Nasdaq in 2019, flagged in a prospectus for a follow-on share offering in April that its business could be affected by a change in stance on the part of authorities who have wide discretion in interpreting regulations.

UP Fintech, which is valued at $737 million, said it had been following rules laid out by global regulators and would comply with and implement any new rules.

Shares in Futu rose 4% on Friday, although they have shed 20% year to date. UP Fintech shares, which have lost more than 40% of their value this year, were up around 1.6%.

The CSRC, State Administration of Foreign Exchange and the People’s Bank of China did not immediately respond to a request for comment by Reuters.

But in October, Sun Tianqi, the head of the central bank’s financial stability department said securities investment services provided to domestic users by cross-border internet brokers without a domestic license are illegal.

Friday’s CSRC notice reiterated this stance, Zoey Zong, an equity analyst at Jefferies in Hong Kong, said on Saturday.

“Considering recent concerns on cross-border trading and data transfer, although we still need to wait for more guidelines from the regulators, we think [it] should affect Futu’s user acquisition and trading volume,” she added.

In May, senior vice president Robin Li Xu said Futu would apply for digital currency-related licences in the US, Singapore and Hong Kong. He said crypto trading would not be offered to its mainland clients.


  • Reuters, with George Russell



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George Russell

George Russell is a freelance writer and editor based in Hong Kong who has lived in Asia since 1996. His work has been published in the Financial Times, The Wall Street Journal, Bloomberg, New York Post, Variety, Forbes and the South China Morning Post.


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