Reuters issued an exclusive report on Friday (December 17) that Chinese regulators are planning to ban Futu Holdings Ltd and Tiger Securities (UP Fintech Holding Ltd) based on data security and capital outflow concerns. Online brokerages provide offshore trading services to customers in Mainland China.
The two Chinese companies listed on NASDAQ are the two largest companies in the industry. This ban will prevent hundreds of retail investors in mainland China from easily trading securities in markets such as the United States and Hong Kong.
Reuters said that one of the four sources said the company may receive a notice of the injunction “in the coming months.” All sources declined to be named because they were not authorized to be interviewed by the media.
Futu, with a market value of approximately US$5.5 billion, said in a statement to Reuters that the company has been communicating with Chinese authorities but has not received any formal orders similar to those mentioned in Reuters reports. Futu said the company is currently operating normally.
Futu Holdings stated in an additional prospectus in April this year that its business may be affected by changes in the positions of relevant departments.
Tiger Securities, valued at approximately US$737 million, said the company has always followed the rules of global regulatory agencies and will comply with and implement any new rules.
Futu and Tiger Securities began operating related businesses in 2011 and 2014 respectively, allowing mainland Chinese customers to use personal information such as ID cards, bank cards, and tax records to open offshore accounts.
Both companies are registered with the Hong Kong Securities and Futures Commission (Securities and Futures Commission), but the license does not apply to mainland China. According to sources, mainland China does not have an online brokerage license that specializes in cross-border transactions.
The China Securities Regulatory Commission, the State Administration of Foreign Exchange, and the central bank did not respond to requests for comment.
The Chinese state media Securities Times quoted people close to the regulatory authorities in October as saying that the China Securities Regulatory Commission and other departments are improving rules to regulate the domestic financial activities of Internet brokers such as Futu Holdings and Tiger Securities, which are listed in the United States. This exacerbated the decline in the share prices of the two companies, which have plummeted more than 80% since their peak in February this year.
Chinese state media, People’s Daily, also reported in October that if the US Securities and Exchange Commission and other relevant departments require data, the large amount of information collected by these brokers will be at risk.
The three sources also told Reuters that the Chinese authorities are also worried about capital outflows and that the rapidly growing businesses of the two companies may conflict with China’s foreign exchange control agenda.
Two sources said that Futu executives have been lobbying relevant departments including the China Securities Regulatory Commission, the State Administration of Foreign Exchange and the Central Bank, but they have not yet received any positive feedback.
The two sources said that the ban will affect most of the business of companies such as Futu. One of the sources said that about 40% of Futu’s customers use Chinese ID cards.
(This article is based on Reuters reports)
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