Chinese Regulator Requires Rectification of Illegal Cross-border Operations of Brokerages Futu and UP Fintech

China’s Securities Regulatory Commission (CSRC) said on December 30 that online brokerages Futu Holding, which was originally planning to go public in Hong Kong on the same day, and UP Fintech Holding, which is listed in the US, have conducted cross-border securities businesses involving domestic investors without regulatory consent, contravening Chinese laws.

The CSRC will ask the brokerages to take corrective measures, such as to stop soliciting new business from mainland investors. Although existing Chinese clients will still be allowed to trade via existing platforms, new money must not flow into these accounts unlawfully, the watchdog added.

Affected by this news, Futu said it was “clarifying certain matters concerning the group with the Hong Kong Stock Exchange“, in a filing to the Hong Kong bourse. Futu is a digital financial technology company, providing users with market data, financial information, investment community, investment knowledge and other services through the self-developed one-stop platform Futu NiuNiu and moomoo. Through the licensed brokers under the group, it provides customers with services such as stock trading and clearing, and wealth management.

According to the company’s prospectus, Futu’s revenues in 2019, 2020 and 2021 were HK $1.062 billion ($136 million), HK $3.31 billion and HK $7.115 billion respectively, while the net profits were HK $166 million, HK $1.326 billion and HK $2.8 billion. Its revenue in the first half of 2022 was HK $3.388 billion, down 10.39% year-on-year, while net profit was HK $1.215 billion, down 28.36% year-on-year.

The founder and chairman of Futu is Leaf Hua Li. In 2000, Li, who majored in computer science, joined Tencent and was responsible for marketing, operations, maintenance, products and management. Since Tencent listed in Hong Kong in 2004, speculating in the Hong Kong stock market has become Li’s hobby. “I logged into a Hong Kong stock trading software and found that the interface was designed like those in the 1980s,” Li once said. After that, Li founded Futu. Before the IPO, Li held 36.3% of Futu, Tencent held 22.2% and other US investors held 41.1%.

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UP Fintech, established in 2014, is an Internet brokerage firm focusing on US and Hong Kong stocks. Tiger Trade, a trading platform independently developed by the company, enables users to trade a variety of financial products in major global markets such as US, Hong Kong, and Singapore with one account. Wu Tianhua, firm founder and CEO, graduated from Tsinghua University, and was the head of NetEase Youdao’s search technology. In March 2019, UP Fintech was officially listed on the Nasdaq.

UP Fintech’ revenue in the third quarter of 2022 was $55.41 million, down 8.8% year-on-year, while its net profit decreased by 83.7% year-on-year to $3.336 million. Regarding the company’s performance in the third quarter, Wu said, “The macro environment did not improve significantly in the third quarter. The continued tightening of monetary policy by the Federal Reserve and the rise in short-term interest rates slowed down market activity, customer asset growth and IPOs.”

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