New York May 16 2023: Shares of online brokerages Futu Holdings and Up Fintech Holding were sharply lower on the Nasdaq Tuesday after they said they’ll remove their apps from online stores on the Chinese mainland in response to “rectification requirements” from the Chinese Securities Regulatory Commission.
Many in the investing world regard the two firms as Chinese parallels to Robinhood Markets popular trading platforms that people in China can use to make trades in markets beyond the country’s borders, including the United States.
Tencent backed Futu will remove its Futubull app from app stores in China by May 19, and Up Fintech said it will remove its app, Tiger International, by May 18.
Futu said it’s removing the app in order to bring its operations into compliance with “regulatory principles regarding cross border operations.” Up Fintech said the move was made “in order to complete the rectification work with satisfactory results.”
Both companies said existing mainland Chinese customers will still be able to trade using the apps. Up Fintech said existing Chinese mainland clients will receive links for instructions on how to update and download the app going forward, while Futu gave a phone number for clients to call.
The two Chinese firms stopped accepting mainland Chinese clients at the end of last year after the CSRC started inquiries regarding their cross-border operations, including providing cross-border securities services for domestic investors.
Hong Kong subsidiaries of several Chinese state-owned banks offer the same capabilities as Futu and Up Fintech. It isn’t clear whether the state-owned banks will also need to remove their apps.
If regulatory application isn’t consistent, it may raise further concerns among international investors that China will favor its own state sector over the private sector, despite assurances to the contrary by the country’s leadership.
In response to the inquiries that began in late December, shares of both companies fell dramatically and analysts covering the stocks began ratcheting down growth expectations.
Morgan Stanley rates Futu equal weight with a price target of $44.
“With the removal of onshore client growth contribution gradually being priced in, we think future growth potential will increasingly hinge on FUTU’s global expansion strategy, especially in Asian markets,” Morgan Stanley wrote in an April 14 note.
Tuesday’s announcement is hurting both stocks, but it’s not the worst-case scenario the companies faced — which would have required them to stop servicing existing mainland clients.
Morgan Stanley warned in April that if Futu were forced to roll off its mainland clients, the stock could fall to as low as $28. Futu’s 52-week high is $72.