Shares of Futu, UP Fintech Plunge in U.S. on People’s Daily Article

U.S.-traded shares of Chinese online brokerages Futu Holding Ltd. and UP Fintech Holding Ltd. plunged Thursday after China’s state media published an analysis questioning their ability to meet requirements of the country’s new data protection law.

The article, published on the website of state newspaper People’s Daily, said that under the new data protection law online brokerages providing global stock trading services will face new challenges in their use of personal information on Chinese mainland users.

Futu’s Nasdaq-listed shares tanked more than 13% Thursday afternoon to $73.11, down 62% from the peak in February. UP Fintech, known as Tiger Brokers in Asia, fell more than 20% to $8.19, down 78% from its February high.

Futu is China’s largest online brokerage, both by revenue and market cap. UP Fintech is backed by veteran American investor Jim Rogers, Chinese smartphone giant Xiaomi Corp. and U.S. brokerage giant Interactive Brokers Group Inc. At the end of March, Chinese mainlanders made up 80% of Up Fintech’s paying clients and 55% of Futu’s, sources close to the two companies told Caixin.

Some brokers, including UP Fintech and Alibaba-backed Snowball X, transferred client data to Interactive Brokers, which helps them conduct orders and asset clearing, the People’s Daily said. The article said the online brokers will be tested when it comes to offering personal data to upstream providers such as Interactive Brokers as well as foreign regulators.

China passed its first national Personal Information Protection Law in August, setting strict rules on how companies and government departments should collect and use personal information. The law takes effect Nov. 1.

Critical information infrastructure, which is used in public communications and information services, energy, transportation, finance and other important industries, should be stored domestically, and data that needs to be shared overseas should first go through a safety assessment by the government, according to the new law.

The regulation does not set out detailed standards for determining what companies will be viewed as critical information infrastructure operators. Detailed implementation rules will be published by specific industrial regulators. But how online brokerages such as Futu and Tiger store and share users’ personal information will come under the new law’s regulation.

The two companies have managed to stay off regulators’ radar by running their brokerage services through overseas entities that exist outside the authority of China’s securities regulator, as well as by shunning the yuan to avoid running afoul of the country’s foreign exchange regulator.

Neither brokerage technically operates a securities business on the mainland, even though the majority of their customers reside there. Instead, they have subsidiaries that operate securities businesses that are based and licensed abroad.

In July 2019, Futu and Tiger were among 40 apps cited by a special working group as having problems in collecting personal information. They were ordered to carry out rectifications as soon as possible. Futu said it completed the rectification work in August 2019, and it organized a study of the new law and arranged a self-check on compliance.

To prevent abuse of customer data, Tiger has a self-developed data encryption system, the company previously said.

Contact reporter Denise Jia (huijuanjia@caixin.com) and editor Bob Simison (hello@caixin.com)

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