CHINA is taking a tougher stance on capital flows out of the country as the nation’s two leading cross-border online brokerages decided to remove their trading platforms from app stores in the mainland.
Futu Holdings Ltd. and Up Fintech Holding Ltd., also known as Tiger Brokers, said Tuesday that the move was to comply with the Chinese securities regulator’s requirements on cross-border brokerage businesses. Futu’s app Futubull will be removed Friday, and Tiger Brokers’ app will be taken off on Thursday.
Existing clients in mainland China can continue to use the apps to make trades, and users outside of the country won’t be affected, the brokers said. Futu and Up Fintech have been operating in a gray area for their mainland China businesses, allowing millions of local investors to evade capital controls to trade shares in markets such as Hong Kong and New York.
China has increased scrutiny of operations that could risk financial stability and national security in recent months, especially as relations with the US worsened and demand rose among mainlanders to move wealth offshore as China reopened from Covid zero. Lines at Hong Kong bank branches had hours-long waiting times in early May during the Golden Week holiday, as tourists from the mainland tried to open an account in the region.
“The actions on Futu and Tiger Brokers clearly show China’s grand agenda remains focused on financial security,” said Robert Lee, a Hong Kong lawmaker representing the financial services sector. “As long as one complies with the rule, it is still permitted to get Chinese clients.”
Beijing has also recently tried to rein in expert network consultancies operating in the country, ensnaring companies like Capvision Pro Corp. which Chinese state media has accused of leaking state secrets.
Chinese regulators asked Futu and Tiger Brokers in late 2022 to rectify “illegal” business activities and stop taking new onshore investors, saying the companies had over the years conducted cross-border securities trading business without approval from the China Securities Regulatory Commission. It followed similar criticism from a senior central bank official, who had questioned the legitimacy of online trading firms, calling their services “illegal” at least twice since 2021.
The criticism had prompted the companies to shift their focus away from the domestic market, with Tiger Brokers resorting to job cuts and Futu eyeing overseas markets to diversify its growth. Futu also abruptly postponed its Hong Kong listing less than a day before its scheduled debut last year.
“The move is in line with the regulatory stance from late last year and early this year, and is part of the rectification progress as we see the measures being implemented,” said May Zhao, head of equity research at Zhongtai Financial International Ltd. “It’s not a total surprise.”
The brokerages’ mainland China client base is expected to remain intact despite removal of the apps, analysts at Citigroup Inc. led by Judy Zhang wrote in a note. They cited the case when Didi was taken off mainland app stores in 2021, saying it managed to retain a majority of its customers due to lack of high quality alternatives.
Futu shares closed 4.4% lower in New York Tuesday, while shares of Up Fintech dropped 7.4%, with both recouping some earlier losses.
Mainland customers accounted for about 10% of Futu’s new users last year, according to an earlier estimate by Daiwa Capital Markets Hong Kong Ltd. Up Fintech had over 20% of its new funded accounts from mainland China in the third quarter last year, according to its Chairman Wu Tianhua. — Bloomberg
