Breaking: CSRC plans to confiscate "all illegal gains from both domestic and overseas" from Tiger Brokers, Futu, and Longbridge.

Xinhua News Agency reported that the CSRC plans to confiscate all illegal gains from the domestic and overseas entities of Tiger Brokers, Futu Securities, and Longbridge, and impose severe penalties in accordance with the law. The three brokerages are suspected of violating Chinese securities, fund, and futures laws and regulations due to illegal cross-border operations. This marks the most significant escalation since the CSRC banned new account openings at the end of 2022, officially shifting from "curbing increments" to "clearing stocks," with Longbridge being publicly named for the first time. (Previous coverage: Eight Chinese departments issue joint new regulations: Virtual currency issuance and trading are illegal financial activities) (Background: Jensen Huang's visit to China is of no use! Why is China proactively refusing to buy H200?) Key Highlights - The CSRC plans to confiscate all illegal gains from the domestic and overseas entities of Tiger, Futu, and Longbridge and impose severe penalties. - The three brokerages were deemed to be operating illegally for conducting cross-border securities business for domestic investors without approval. - The first crackdown in late 2022 only banned new accounts; this escalation involves the clawback of earnings, with Longbridge being named for the first time. When the CSRC first took action against cross-border brokerages at the end of 2022, it did two things: prohibited the solicitation of domestic Chinese investors and banned the opening of new accounts. At the time, Futu (Nasdaq: FUTU) and Tiger Brokers (Nasdaq: TIGR) both plummeted by about 30% in pre-market trading, but the trading rights of existing clients were preserved, leaving a path for survival. Three years later, the rules of the game have completely changed: not only are new accounts banned, but all past earnings are to be clawed back in full. All three brokerages named, Longbridge included for the first time The three firms targeted this time are not minor players. Futu Holdings, led by Tencent, is one of the largest online brokerages in Asia. Tiger Brokers' parent company, UP Fintech, is backed by Interactive Brokers and Xiaomi, with its New Zealand subsidiary, Tiger Brokers (NZ) Limited, explicitly included in the penalty list. Longbridge, also backed by Xiaomi, had never been publicly named during the regulatory storms of the past three years, but this time it has been directly included in the confiscation list. The common issue among the three platforms: they all used Hong Kong or overseas licenses to provide US and Hong Kong stock trading channels to domestic Chinese investors via the internet, but none obtained approval from the CSRC, leading to them being deemed as operating illegal securities businesses. Three-year escalation of the crackdown In October 2021, the CSRC first stated through the media that cross-border operations were considered illegal. In November of the same year, it interviewed executives from Futu and Tiger. On December 30, 2022, it officially ordered to "effectively curb increments and orderly resolve stocks," banning new account openings while retaining trading rights for existing clients. In 2023, Futu and Tiger successively removed their apps from major Chinese app stores and subsequently shifted their focus to overseas markets. The CSRC's current "proposed decision" wording indicates that it has entered the formal administrative penalty process. The phrase "confiscate all illegal gains from domestic and overseas related entities" is noteworthy; it implies that not only domestic branches in China are affected, but entities in places like Hong Kong and New Zealand are also included in the scope of the clawback. FAQ Why is the CSRC penalizing Tiger, Futu, and Longbridge? The three brokerages provided cross-border securities trading services to domestic Chinese investors through Hong Kong or overseas licenses without approval from the CSRC, which was deemed as operating an illegal securities business in violation of the Securities Law and other relevant regulations. What is the difference between this penalty and the one in 2022? In 2022, the action was limited to prohibiting the solicitation of new clients and the opening of new accounts, while existing clients could continue to trade. This escalation involves the confiscation of all illegal gains and severe penalties, and it is the first time Longbridge has been included, covering both domestic and overseas entities.