Two Nasdaq-listed online brokerages that cater to clients in China are preparing to further curtail their offerings in the country, amid tightening controls by Beijing on private firms, capital flight and data flows.
Futu Holdings and Up Fintech Holding, known as Tiger Brokers, are planning to remove apps from online stores in China that allow their customers to trade stocks overseas, according to people familiar with the matter.
After the Journal’s article was published, a Tiger Brokers spokesperson said the company would remove its trading platform from app stores in mainland China starting Thursday. The company said that it is making the change to comply with the China Securities Regulatory Commission’s requirements on its cross-border operations in the country, and that its existing clients wouldn’t be affected by the change.
Futu said that it would remove its Futubull app in the country starting Friday, and that existing clients in mainland China can still make trades on the app afterward, according to a regulatory filing.
Shares of both companies dropped in U.S. premarket trading Tuesday.
The companies’ latest actions follow a December statement by China’s securities regulator, which said both brokers had violated the country’s laws by allowing their clients on the mainland to make cross-border trades. Both Futu and Tiger offer services to Chinese citizens who already hold dollars and other currencies in bank accounts abroad, a source of business also tapped by China-based financial firms and global banks and institutions.
The two brokers are reducing their services in China as a variety of companies face tough questions about how they should operate in the country. Chinese regulators have increased their scrutiny of foreign businesses in recent weeks, including questioning staff in consulting firm Bain & Co.’s Shanghai office and detaining the Beijing-based employees of U.S. due-diligence company Mintz Group. Foreign executives have become increasingly worried about shifting boundaries for offering services in China.
The forced removal of the Futu and Tiger apps may ripple beyond the two companies and further dent confidence about the direction of regulation in the country, the people said.
Futu and Tiger, which have popular retail-trading trading apps similar to Robinhood Markets in the U.S., are used by individuals from China and elsewhere to trade stocks and other financial investments listed on major international exchanges in the U.S., Hong Kong and other locations.
The industry exists in a gray zone as the companies are regulated in markets where they operate—such as Hong Kong and Singapore—while dealing with customers who are sometimes citizens of mainland China, where different rules apply. Futu, which counts China’s Tencent Holdings as a substantial investor, is incorporated in the Cayman Islands and is based in Hong Kong. Up Fintech, which is also incorporated in the Cayman Islands, is run from Singapore and Beijing.
To serve customers in China, Futu and Tiger—like many international financial institutions outside the country—take advantage of an existing Chinese regulation that allows the country’s nationals to legally transfer out of China the yuan equivalent of $50,000 annually.
It is unclear whether China’s securities regulator will look beyond Futu and Tiger, both privately owned companies that are regulated outside of China. Chinese Premier Li Qiang recently pledged to treat government-, private- and foreign-owned companies according to the same rules. A number of large Chinese financial companies also offer apps in the country that allow their customers to trade shares overseas.
As a result of the regulatory pressure, Futu and Tiger will remove certain apps from online marketplaces in China before May 19, according to the people familiar with the matter. After being called out by China’s regulatory agency in December, the companies stopped accepting new customers online. The removal of the apps promises to further crimp their customer bases, the people said. Existing customers will still be able to access the companies’ services.
During the tech crackdown in 2021, Beijing took a similar action against Didi Global when the ride-hailing company was required to suspend access to apps for potential new customers in China for around two years, even as the company continued to service its existing client base.
Wu Tianhua, chief executive of Up Fintech, said in an earnings call in late March that the company stopped accepting new clients from mainland China at midnight on Dec. 30. Up Fintech said that of the 27,300 new accounts it added in the last quarter, around 90% were from outside mainland China.
The company said Tuesday that it would provide instructions to existing Tiger customers in mainland China on updating and downloading its app in the future.
As of June last year, 35% of Futu’s paying clients were mainland Chinese users, according to the broker’s figures. Its net income last year rose 4% to the equivalent of $375 million, on revenue of $976 million.
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