Futu, UP Fintech Face Uncertainty as China Mulls Online Brokers Ban

Friday, 17/12/2021 | 13:01 GMT by Arnab Shome
  • Both Futu’s and UP Fintech’s businesses are centered around clients from mainland China.
  • They allow mainland China investors to invest in foreign stocks.
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China looks determined to take action against online brokers as local regulators are planning to ban companies like Futu Holdings and UP Fintech, both of which are listed on the American stock exchange, Nasdaq.

As reported by Reuters on Friday, the regulatory ban would mean that none of the online brokers that allow clients from mainland China to invest in stocks listed on foreign stock markets like Hong Kong and China has to shutter their services in the country.

Two of the primary reasons behind such a decision are data security and capital outflows, the report detailed, citing ‘people familiar with the matter’. Moreover, the regulators are expected to notify about the ban in the coming months.

Bloodbath on Stock Market

The possibility of such a ban has brought tremors among investors of Futu and UP Fintech as share prices of both the companies have dived in the past few hours. Futu lost around 8.33 percent in pre-market trading, while UP Fintech shed almost 11 percent of its value, as of press time.

Futu, which is one of the two major online brokers, confirmed in a statement that it did not receive any notifications of any such adverse order despite its ongoing communications with Chinese regulators.

“To date, the Company has not received (nor is it aware of) any notice, guidance or order from any PRC regulatory authorities which is expected to have a material adverse impact on its business operation or financial conditions,” Futu stated.

“The Company has been operating steadily and will continue to serve existing and new clients.”

The hostility of Chinese regulators against online brokers did not come as a surprise. Earlier, a top Chinese regulatory official publicly stated that all such online brokers are operating illegally in mainland China.

Futu and UP Fintech are both registered in Hong Kong, but the ‘one country, two systems’ policies do not extend the licensing scope to the mainland. These companies are operating in a grey area as mainland Chinese regulators do not offer any license to online brokerages specializing in cross-border trades.

“Cross-border online brokerages are driving in China without a driver’s license. They’re conducting illegal financial activities,” Sun Tianqi, the Head of the Financial Stability Department of the People’s Bank of China (PBOC), said earlier.

China looks determined to take action against online brokers as local regulators are planning to ban companies like Futu Holdings and UP Fintech, both of which are listed on the American stock exchange, Nasdaq.

As reported by Reuters on Friday, the regulatory ban would mean that none of the online brokers that allow clients from mainland China to invest in stocks listed on foreign stock markets like Hong Kong and China has to shutter their services in the country.

Two of the primary reasons behind such a decision are data security and capital outflows, the report detailed, citing ‘people familiar with the matter’. Moreover, the regulators are expected to notify about the ban in the coming months.

Bloodbath on Stock Market

The possibility of such a ban has brought tremors among investors of Futu and UP Fintech as share prices of both the companies have dived in the past few hours. Futu lost around 8.33 percent in pre-market trading, while UP Fintech shed almost 11 percent of its value, as of press time.

Futu, which is one of the two major online brokers, confirmed in a statement that it did not receive any notifications of any such adverse order despite its ongoing communications with Chinese regulators.

“To date, the Company has not received (nor is it aware of) any notice, guidance or order from any PRC regulatory authorities which is expected to have a material adverse impact on its business operation or financial conditions,” Futu stated.

“The Company has been operating steadily and will continue to serve existing and new clients.”

The hostility of Chinese regulators against online brokers did not come as a surprise. Earlier, a top Chinese regulatory official publicly stated that all such online brokers are operating illegally in mainland China.

Futu and UP Fintech are both registered in Hong Kong, but the ‘one country, two systems’ policies do not extend the licensing scope to the mainland. These companies are operating in a grey area as mainland Chinese regulators do not offer any license to online brokerages specializing in cross-border trades.

“Cross-border online brokerages are driving in China without a driver’s license. They’re conducting illegal financial activities,” Sun Tianqi, the Head of the Financial Stability Department of the People’s Bank of China (PBOC), said earlier.

About the Author: Arnab Shome
Arnab Shome
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About the Author: Arnab Shome
Arnab is an electronics engineer-turned-financial editor. He entered the industry covering the cryptocurrency market for Finance Magnates and later expanded his reach to forex as well. He is passionate about the changing regulatory landscape on financial markets and keenly follows the disruptions in the industry with new-age technologies.
  • 6353 Articles
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