Futu Holdings (FUTU) shares tumbled 27.5% on Friday to close at $89.76, extending a brutal week that saw the Nasdaq-listed brokerage lose roughly a third of its market value. The sell-off came after China's Securities Regulatory Commission (CSRC) proposed a hefty fine of 1.85 billion yuan (approximately $271 million) over claims that the company operated securities, public fund sales, and futures businesses in mainland China without the required licenses.
The proposed penalty, which is not yet final, represents a major regulatory escalation in Beijing's ongoing crackdown on cross-border brokerage services. Offshore platforms like Futu and Tiger Brokers have been under scrutiny for facilitating trades for mainland clients in foreign securities, a practice that runs afoul of China's strict capital controls.
Futu disclosed in a U.S. filing that the CSRC and its Shenzhen unit identified several of its entities as conducting unlicensed business. Regulators have demanded that these activities be rectified or halted, and that illegal gains be surrendered along with fines. The company stressed that it can still present its case, defend itself, and request a hearing before any final decision.
At the end of the first quarter, accounts from mainland China with assets represented about 13% of Futu's total funded accounts. While the firm assured that operations outside the mainland remain normal, the regulatory threat raises concerns about client losses and slower revenue growth. Reuters reported that clients caught in the two-year wind-down would be allowed to sell positions and withdraw cash but would be barred from making new investments.
Peer firms also felt the heat. UP Fintech (Tiger Brokers) saw its shares drop sharply, and Longbridge was also named in the regulatory action. The broader market context was mixed: the Nasdaq Composite edged up 0.19% on Friday, but Futu's decline stood in stark contrast.
Analysts have turned cautious. J.P. Morgan Securities downgraded Futu to 'neutral' from 'overweight' and slashed its price target to $87 from $300, according to Schaeffer's Investment Research. Gary Ng, senior economist for Asia Pacific at Natixis, told Reuters that the government wants to ensure outbound capital flows remain under its scrutiny. Zhan Kai, a partner at Dacheng in Shanghai, described the current penalties as 'relatively lenient for now' but warned that larger fines or tougher measures could follow.
Over the weekend, Futu announced it had repurchased roughly $160 million worth of American depositary shares under a buyback plan from last year, and signaled it could continue depending on market conditions. The buyback may provide some support, but the stock faces headwinds from regulatory uncertainty and potential client attrition.
Investors now look ahead to Futu's first-quarter earnings report on Thursday, May 28, with the conference call set for 7:30 a.m. U.S. Eastern time. The market will be closed for Memorial Day on Monday, so the first chance to trade on the news will be Tuesday. Key points to watch include the impact of the proposed fine, the pace of mainland account reductions, and whether overseas expansion can offset the business being wound down in China.
