Tencent-backed Futu eyes new Asian markets outside China

One of China’s most prominent online brokers plans to venture into “one or two” new markets in Asia within the next 12 months, in a concerted international push amid regulatory uncertainty at home, as Beijing cracks down on internet platform companies.

The Shenzhen and Hong Kong-headquartered Futu Holdings, backed by Chinese technology giant Tencent, is exploring new opportunities in the 10-member Association of Southeast Asian Nations, which is home to more than 650 million people. The broker opened for business in the region last year, planting its flag in Singapore.

“Certain other ASEAN countries are on our radar nowadays,” Futu’s CEO Leaf Li told Nikkei Asia in an interview, speaking in Mandarin. “We are in the process of applying for a local brokerage license over there, but, you know, we cannot disclose the exact country yet.”

The internet company told Nikkei in April that Thailand and Malaysia were potential markets for its business, which operates a model similar to popular U.S.-based digital trading platforms like Robinhood and Interactive Brokers that aims to keep overhead costs in check by minimizing physical outlets.

Li said Hong Kong is still his company’s most important market. The CEO owns around a third of the company, while Tencent Holdings has a stake of over 20%. Futu operates the Futubull trading platform in the Chinese hub; in Singapore, its service is branded as Moomoo.

In August, the Nasdaq-listed broker reported a net income of $87.7 million for the second quarter ended June 30. On mainland China, Li said his clients were mainly corporate or institutional customers, while growing its base of international retail investors is his focus for expanding the company in the future.

Futu acquired 61,000 new paying clients in the second quarter, about 90% of them from the U.S., Hong Kong, Singapore and Australia, with the total number of users of Moomoo and Futubull rising 20%, year over year, to 18.6 million during the period.

“Futu, from day one, has always focused on outside-of-China market development,” the CEO said. “This is not so much related to the regulatory situation in China — it is our company’s strategy that we have been always working on internationalization of our business.”

Futu has faced mounting pressure in its home market as authorities in China clamp down on the tech industry, citing concerns over data management and privacy.

An online article published last October by the People’s Daily, the official newspaper of the Chinese Communist Party, warned that online brokerages operating across borders could violate user privacy and face regulatory risks, explicitly naming both Futu and its rival UP Fintech.

Li said his company welcomes regulation and hopes the Chinese authorities will clarify the rules around internet platforms so that Futu will have greater certainty on their ability to operate.

“With time now we will see more clear policies, or those government policies getting more stringent,” he said. “In a way, it is actually a good thing because without those government regulations it is difficult to ensure that businesses have a very healthy environment to operate in.”

Futu’s Nasdaq listing also faces pressure from ongoing U.S.-China tensions. Beijing and Washington have been in talks to resolve a long-running dispute that could lead to Chinese companies being ejected from U.S. exchanges if they do not comply with U.S. audit rules.

Washington has long demanded complete access to the books of U.S.-listed Chinese companies, but Beijing bars foreign inspection of audit documents from local accounting firms, citing national security concerns.

Li said Futu will likely stay on Nasdaq, with the company currently exploring the potential for a secondary listing elsewhere in Asia. The Stock Exchange of Hong Kong has been raised as a logical fit for the internet broker.

“This is a natural guess by many outsiders,” Li acknowledged. “At the end of the day, you know, a listing for another venue should incorporate a lot of factors, not only just political, you know, risks, but also the capital market cycle itself.”

Futu also plans to venture into nontraditional finance, with an eye on rolling out cryptocurrency services like token trading for its retail base. The company wants to start this in Singapore and has begun seeking approval from the financial regulator for a license in this area.

The discount broker faces a stringent vetting procedure imposed by the Monetary Authority of Singapore, the city-state’s central bank. While the authority has said it welcomes innovation in the digital asset sector, it heavily frowns upon speculating on virtual tokens as an investment vehicle.

Singapore is concerned about crypto-related crime as well, and the risks the nascent industry brings to financial stability. The authority has chosen to regulate the sector primarily to guard against money laundering and the financing of terrorism, but intends to extend its powers and make retail access to digital coins harder.

“Each country, they have different regulations,” Li noted. “We first have to understand how we can customize for the needs of each country, based on each country’s government regulations, how we can then shape or mold our product to provide the right product for the right countries.”

Author: DYLAN LOH, NIKKEI Asia