No respite for Futu, Tiger Brokers as Chinese state media reiterate online services amount to ‘illegal financial activities’

  • Chinese state media continue to slam online brokers, with the stinging criticism putting further pressure on their stock prices
  • Futu Holdings’ share price has sunk 70.4 per cent from its peak in February, while Tiger Brokers has lost 81.5 per cent in the same period

Chinese state media continued to hammer online brokers providing cross-border stock and derivative trading services for mainland investors, with the stinging criticism putting further pressure on their stock prices.

The Economic Daily on Monday reiterated that the services offered by online brokers such as Nasdaq-listed Futu Holdings and Tiger Brokers were “typical illegal financial activities” and operating without regulatory approval, echoing comments made late last month by a central bank official.

Such financial activities were likely to become a tool for illegal capital outflows, and bear the risks of financial data leaking overseas, the newspaper said.

“Futu has been operating within the original framework of industry laws and regulations, the same as other peers in Hong Kong with certificates,” US-listed Futu said in a reply to a query from the Post on Monday. Futu has been under strict regulatory scrutiny and has received certificates to operate in Hong Kong since its founding, it added.

Tiger Brokers, which is also listed in New York, did not reply to a request for comment.

Chinese state media started highlighting the risks posed by online brokers in mid-October, with the Communist Party mouthpiece the People’s Daily arguing that risks existed for online brokers such as Tencent Holdings-backed Futu and Xiaomi-backed Tiger Brokers in their protection of user data.

That came as China was in the midst of a sweeping campaign to enhance protection of personal privacy, culminating in the implementation of the new personal information protection law on November 1.

The People’s Daily commentary was followed by an official at the People’s Bank of China saying on October 28 that online brokers need to be licensed in China to offer cross-border trades to mainland residents.

The regulatory tightening has hit share prices of the companies hard, which soared during the coronavirus pandemic when investors flocked to online trading platforms.

Futu has lost 70.4 per cent from its peak in mid-February, closing at US$56.49 on Friday. It had surged 247.2 per cent in the first quarter. Up Fintech Holding, parent of Tiger, has shed 81.5 per cent since touching a high on February 16. It closed at US$6.81 on Friday, after surging 124 per cent in the first quarter.

The problem of personal information protection is more worrying, the Economic Daily said, adding regulators should strengthen collaboration to improve oversight of the sector.

Futu had recorded a 230.2 per cent year on year jump in paying clients to one million in the second quarter, with net income rising 125.8 per cent to HK$533.9 million (US$68.7 million) from a year ago.

Tiger reported a net loss of US$21.5 million in the second quarter compared with a net income of US$4.4 million in the same period in 2020.

JPMorgan said a total clampdown on existing business of the online brokers was unlikely, according to its research report dated October 28.

“Our sensitivity test shows that assuming revenue contribution from mainland clients goes to zero in 2022, Futu would still be profit-making,” analyst Katherine Lei said.

Author: Iris Ouyang, SCMP

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