China’s securities regulator CSRC and seven other government departments have unveiled a plan to eliminate illegal cross border securities, futures and fund businesses within the next two years.
The crackdown targets overseas brokers, futures firms and fund managers that offer trading services to mainland Chinese investors without regulatory approval.
Authorities will ban overseas institutions from marketing, soliciting clients, opening accounts, processing trades or handling fund transfers for domestic investors in China.
Domestic companies and affiliates will also be prohibited from helping foreign firms with marketing, trading support, customer service, website operations or software development.
Existing illegal businesses must be shut down within two years. Current investors will only be allowed to sell holdings and withdraw funds, while new purchases and capital inflows will be prohibited.
China will strengthen monitoring, remove illegal advertisements and online content, investigate offenders, pursue criminal cases where necessary and tighten scrutiny of banks and foreign exchange transactions linked to unauthorized investments.
CSRC specifically named Tiger Brokers, Futu Holdings and Longbridge, saying their activities violate Chinese securities, fund and futures laws. Regulators said severe penalties will be imposed.
Investors reacted sharply. US listed Tiger Brokers fell more than 39% in pre market trading, while Futu Holdings dropped about 32% after the announcement.
Update: China’s crackdown on illegal cross-border brokerage activities hit Chinese ADRs in U.S. pre-market trading. Tiger Brokers said it will fully cooperate with regulators and that its operations remain normal, but shares still plunged sharply. Meanwhile, PDD Holdings fell about 6% and Alibaba dropped around 4% as investors reacted to the regulatory move.
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