Futu Holdings (NASDAQ:FUTU) and UP Fintech Holding (NASDAQ:TIGR) American depositary shares tumbled Friday after China authorities said they would ask the two online brokerages to stop taking new onshore China investors as customers until they rectify “illegal” business activities.
ADSs in UP Fintech (TIGR), known as Tiger Brokers, plummeted 30% in U.S. premarket trading Friday, and Futu (FUTU) ADSs sank 27%.
Both companies are based outside of mainland China and provide brokerage services to mainland clients.
The China Securities Regulatory Commission issued a statement late Friday saying the two companies had for years operated cross-border securities trading businesses without the commission’s approval. “Their act has constituted illegal operation of securities business according to the Securities Law and related regulations,” it said.
Futu (FUTU) said it will “fully cooperate with the CSRC and take all necessary measures to review its cross-border operations in mainland China and to comply with all applicable rules and regulations.
As of November, UP Fintech (TIGR) has 63 licenses and qualifications in markets including Singapore, New Zealand, the U.S., Hong Kong, and Australia, with more than 90% of its new customers from those locations, the company said in a statement to Seeking Alpha.
“UP Fintech has been strictly abiding by relevant laws and regulations in its daily operations,” the company said. “While actively cooperating with the regulators, the company will take corrective measures to stop enrolling new onshore customers,” noted, which adding that its business outside of mainland China won’t be affected. (Updated at 9:17 AM ET.)
Futu (FUTU) is a Cayman Islands holding company. Its Shensi Beijing subsidiary has entered into contracts with Shenzhen Futu Network Technology, a company incorporated in China in order to operate in China. The contractual arrangements, though, haven’t been tested in Chinese courts, the company said in its annual 20-F filing in March. UP Fintech has similar arrangements.
More than a year ago, China’s central bank warned that online brokerages that aren’t licensed in China are operating illegally if they’re serving mainland China clients through the internet.
Before today’s slide, SA contributor Chris Lau said he expected near-term negative sentiment for Futu (FUTU), followed by stronger prospects in 2023.