Finance fishing boats

China Trading Apps Tank After Official Called Them “Illegal”

(Bloomberg) – China’s largest cross-border brokers have plummeted in pre-market trading in the United States after a central bank official questioned the legitimacy of their operations amid Beijing’s continued crackdown on businesses private.

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These online brokers engage in “illegal financial activities” because they do not have a “driver’s license” to operate in China, Sun Tianqi, a senior official at the People’s Bank of China, wrote in an article published on the. Finance 40 Forum website. Sun did not name the brokers and added that calling them illegal had nothing to do with China’s capital control rules.

Futu Holdings Ltd., backed by Tencent Holdings Ltd., fell 31% in pre-market trading, while Fintech Holding Ltd., backed by Xiaomi Corp., known as Tiger Brokers, fell 23%. Both stocks have skyrocketed since the companies went public in New York in 2019.

China has tightened controls over large swathes of its economy, particularly cracking down on companies that collect data from consumers, such as ridesharing apps and other tech giants. Futu and Up Fintech operate in a gray area, allowing millions of Chinese investors to evade capital controls to trade stocks in markets such as Hong Kong and New York.

This “seems consistent with what China has done to curb capital flight – via crypto assets or any other cross-border venue,” said Derek Tay, chief investment officer at Kamet Capital Partners Pte.

In an analysis earlier this month, the People’s Daily said online brokers operating across borders run the risk of violating data privacy rules. Businesses are in the spotlight as China’s personal information protection law goes into effect on November 1. The article says that the data of users of both brokers is at risk of being compromised, as they are required to provide information to the United States Securities and Exchange Commission.

Sun, the central bank official, said that one company, registered in the Cayman Islands, received 80% of its funds from mainland China, while another Hong Kong-based company received 55%. He did not name the companies.

This is not the first time Sun has criticized the legitimacy of cross-border business. In an article he wrote for China Forex, a state agency in 2018, Sun said that Chinese regulators have not approved any institution to conduct foreign exchange margin trading in the domestic market and that any form of such activities were illegal.

Securities Times reported earlier this month that regulators are working on rules to regulate online brokerage business, citing an unidentified person close to the regulator.

“Since Futu Securities became a licensed institution under the supervision of the Hong Kong Securities and Futures Commission, the institution has been functioning well without any bad regulatory record,” Futu founder Leaf Li said in a statement on Thursday.

Same model

Futu Holdings has raised more than HK $ 15 billion ($ 1.9 billion) in the past year and the profits will primarily support Futu Securities’ business operations, he said. The capital is ample and there is no risk of bankruptcy, he added.

“Tiger Brokers has the same business model as other US and Hong Kong brokers,” Up Fintech said in a statement. “We strictly adhere to regulations globally.”

Futu and Up Fintech have both skyrocketed since their debut over two years ago. Up Fintech traded as high as $ 38.50, four times more than its offer price of $ 8 when it was made public by banks such as Citigroup Inc. and Deutsche Bank. Futu topped $ 200 after launching at $ 12 in a list run by Goldman Sachs Group Inc., Credit Suisse Group AG and other banks.

Another online broker, Webull, is considering an initial public offering in the United States that could raise around $ 300 million to $ 400 million, people with knowledge of the matter said in June. The Changsha, Hunan-based company is working with Goldman Sachs to prepare for the sale, which could take place as early as this year, people said at the time.

(Updates with IPO planned by Webull at the end)

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