As China Makes a Declaration on ‘Illegal’ Activity, Fintech and Futu Stock Prices Go Down

Futu Stock

Futu Holdings (NASDAQ:FUTU)

On Friday, investors sold off American depositary shares of Futu Holdings (NASDAQ:FUTU) and UP Fintech Holding (NASDAQ:TIGR) after authorities in China said they would ask the two online brokerages to stop taking new onshore China investors as customers until they rectified “illegal” business activities. As a result, Futu stock declined in the market. 

ADSs in UP Fintech (TIGR), also known as Tiger Brokers, dropped by 30% during premarket trading in the United States on Friday. In comparison, ADSs in Futu stock fell by 27%.

Both of these businesses provide brokerage services to customers in the Chinese mainland from locations outside China.

The China Securities Regulatory Commission published a statement late on Friday indicating that two firms had been operating cross-border securities trading enterprises without the commission’s clearance for many years. According to the Securities Law and the rules that go along, “their conduct has been characterized as unlawful operation of the securities business,” the document added.

Futu (FUTU) said it would “completely cooperate with the CSRC and take all necessary steps to assess its cross-border activities in mainland China and to comply with all relevant laws and regulations.” Futu is the Chinese acronym for “Future Union.”

According to a statement provided to Seeking Alpha by the company, as of November, UP Fintech (TIGR) possessed 63 licenses and qualifications in markets such as Singapore, New Zealand, the United States of America, Hong Kong, and Australia. Furthermore, the company received more than 90% of its new customers from these regions.

According to a statement made by the firm, “UP Fintech has been scrupulously complying with applicable rules and regulations in its day-to-day activities.” “While aggressively collaborating with the regulations, the firm will take remedial actions to halt enrolling new onshore clients,” it was observed, adding that its operations outside of mainland China won’t be hampered in any way by this decision.

Futu (FUTU) is a holding corporation based in the Cayman Islands. To do business in China, the Shensi Beijing subsidiary of the corporation has signed agreements with Shenzhen Futu Network Technology. This company was founded and registered in China. However, according to the company’s annual 20-F filing that was submitted in March, the Chinese courts still need to review the validity of the contractual agreements. UP Fintech utilizes quite comparable frameworks.

A little over a year ago, the People’s Bank of China warned that online brokerages that aren’t regulated in China operate unlawfully if they serve customers in mainland China through the internet.

A writer to SA named Chris Lau predicted that he anticipated near-term negative sentiment for Futu (FUTU), followed by brighter prospects in 2023. This prediction was made before today’s drop.

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About the author: I'm a financial journalist with more than 1.5 years of experience. I have worked for different financial companies and covered stocks listed on ASX, NYSE, NASDAQ, etc. I have a degree in marketing from Bahria University Islamabad Campus (BUIC), Pakistan.