• China's securities regulator fines three brokerages for illegal cross-border trading.
• Tiger Brokers, Futu, and Longbridge will face penalties totaling hundreds of millions in yuan.
• The crackdown will limit clients to selling existing holdings only, halting new investments.

China's securities regulator has launched a significant crackdown on illegal cross-border securities trading, targeting major brokerages such as Tiger Brokers, Futu Securities, and Longbridge. The China Securities Regulatory Commission (CSRC) announced that these firms had been operating without the required approvals or licenses to manage investments from mainland Chinese clients, violating the Securities Law. Consequently, the brokers will face penalties, including fines and confiscation of illegal earnings, aimed at restoring order in China's capital markets, according to SCMP, Reuters, and Channel News Asia.

The CSRC revealed plans to eliminate illegal operations by foreign brokerages on the mainland, emphasizing the need to control capital outflows. This move follows previous restrictions enacted in 2022 when private investors were barred from opening accounts with overseas brokers, aligning with a broader initiative to maintain market stability as mentioned by the CSRC. The current crackdown is part of a two-year campaign designed to “completely eradicate” unauthorized cross-border trading activities, according to Reuters and Channel News Asia.

In terms of financial penalties, Futu has reported a proposed fine of approximately 1.85 billion yuan (around USD 271 million), while Tiger Brokers was fined 308.1 million yuan with an additional confiscation of 103.1 million yuan in illegal income. The CSRC has stated that these companies promoted trading without regulatory approval, which has disrupted market order, indicating serious regulatory compliance issues in the online brokerage sector, as reported by SCMP and Channel News Asia.

The fallout from the crackdown has resulted in steep declines in the stock prices of the affected brokerages, indicating a swift market reaction to regulatory news. The shares of Futu and its parent company plummeted by over 30% in U.S. premarket trading, illustrating investor concern over the future of these firms amid stringent new regulations. Investors can only sell existing holdings and withdraw funds without the option to make new investments during this period of increased scrutiny, according to Reuters and Channel News Asia.