Summary of Key Points
Three cross-border securities firms—Tiger, Futu, and Cheung Kiu—have initiated a two-year regulatory review of their services in the Chinese mainland starting from June 12: Domestic investors are prohibited from purchasing stocks or transferring funds into their accounts while operating within China; however, they can still sell stocks and transfer out funds. Users operating overseas or holding overseas identities are not affected by these restrictions. Meanwhile, social media platforms have seen irregularities such as attempts to “grab the last opportunity to open accounts” and requests for “overseas identities.” Regulatory authorities have stepped in to rectify the situation, and industry experts recommend using legitimate channels like the Stock Connect (for Hong Kong stocks) and QDII (for overseas investments) to participate in cross-border investments.
Detailed Explanation
1. Who is affected by these regulations?
The criteria for regulation depend on both your identity and the location from which you conduct transactions:
Many people ask, “Will I be affected if I open an account with a mainland ID card and trade from abroad?” or “Can I trade using an app in China with a Hong Kong ID card?”
In simple terms, only users with a mainland ID card operating within China are subject to the restrictions:
- If you have a mainland ID card and use Futu/Tiger apps in China, you cannot buy stocks or transfer funds into your account from June 12; however, you can still sell existing stocks and transfer out funds.
- If you have a mainland ID card but trade from overseas locations like Hong Kong or Singapore, there are no restrictions; the system will determine your location based on IP address and device location.
- If you hold an overseas identity (e.g., from Hong Kong or Singapore), you can trade normally even if you are in China (although Cheung Kiu’s customer service previously stated that overseas identities could trade normally; please refer to the latest platform rules for confirmation).
The regulatory approach focuses on illegal services conducted within China, not on the user's identity. As long as you do not engage in new transactions using these platforms while in China, you should be fine.
2. What can affected users do now?
If you are among the affected users, don’t panic:
- You can still sell stocks: You can sell any previously purchased Hong Kong or U.S. stocks, funds, etc., and close your positions.
- You can transfer out funds: Funds in your account can be transferred to a domestic bank card (subject to foreign exchange regulations, such as a annual limit of $50,000 per person).
- You cannot buy new assets: All types of purchases are suspended, including opening new positions or adding to existing ones, and you cannot transfer funds into your account.
- Passive income is not affected: Automatic distributions such as stock dividends will be received as usual.
In other words, the regulations allow you to gradually liquidate your existing assets without suddenly freezing your account.
3. Why are there attempts to “grab the last opportunity” and seek overseas identities?
Recently, two unusual phenomena have emerged on social media:
- “Grab-the-last-opportunity” posts: Some people encourage users to open Hong Kong or U.S. stock accounts using false documents (e.g., claiming overseas employment). REDnote has removed more than 500 such posts.
- Requests for overseas identities: Users in Futu’s comment sections are asking for partners with Hong Kong or Singapore identities to bypass the restrictions.
These attempts carry significant risks:
- Accounts opened with false documents will be closed by the platforms (Futu and Cheung Kiu have explicitly stated they will clean up such accounts).
- Using someone else’s identity may lead to fraud, resulting in account closures and potential legal issues.
- Even if you temporarily avoid regulation, the safety of your funds is not guaranteed; these cross-border firms do not have domestic licenses, and any problems could result in the loss of your investment.
4. How to invest in Hong Kong or U.S. stocks legally?
The regulations are not aimed at preventing investments overseas but at ensuring they are done through legitimate channels. Here are three legal options for ordinary investors:
- Stock Connect: You can buy Hong Kong stocks through domestic securities apps (e.g., those of Tencent or Alibaba) without converting to foreign currency; transactions are conducted in RMB and are regulated by Chinese authorities.
- QDII funds: You can purchase “overseas funds” issued by domestic fund companies, such as NASDAQ funds for U.S. stocks or Hang Seng Index funds for Hong Kong stocks. You can buy these directly through apps like Alipay or TianTian Fund.
- Cross-border financial products: Residents of the Greater Bay Area (Guangdong, Hong Kong, Macau) can purchase financial products from Hong Kong and Macau through banks, with annual limits (1 million RMB per person).
Although these channels may have higher fees, they offer greater security and compliance with regulatory requirements.
5. Why do the authorities regulate cross-border investments?
There are two main reasons for this:
- Protecting investors: Cross-border firms without domestic licenses are not regulated by the China Securities Regulatory Commission (CSRC). If these platforms fail or disappear, your funds could be lost (there have been previous cases of overseas platforms going bankrupt).
- Foreign exchange management: Overseas investments involve foreign currency flows, and illegal channels may evade foreign exchange regulations. For example, some people use creative methods to transfer money abroad, which can affect the country’s foreign exchange stability.
The goal of regulation is not to completely ban cross-border investments but to ensure they are conducted safely through legitimate channels.
Final Reminder
If you currently use one of these cross-border firms’ accounts, there’s no need to close it immediately. Focus on liquidating your assets and transferring out the funds you can. If you want to invest in Hong Kong or U.S. stocks, choose legal channels like the Stock Connect or QDII. Remember, safety is always the top priority in investing.
(In this translation, we have used plain language to explain the complex financial regulations in a way that is easy for non-experts to understand.)