China’s securities regulator warns against use of unauthorised apps to trade overseas shares
Equity trading platforms have emerged which enable domestic investors to channel Hong Kong or US dollars into overseas markets
The China Securities Regulatory Commission (CSRC), China’s top securities regulator, on Tuesday warned mainland Chinese investors to stay away from new internet platforms and mobile apps geared towards overseas equity trading, citing operating risks in the unauthorised platforms.
“A number of mainland internet companies emerged recently. They cooperate with overseas brokerage companies, providing channels and services for domestic investors to trade the overseas equity market...While [these activities] lack legal protection,” the CSRC said in a statement that appeared under the risk alert section on its official website on Tuesday.
Other analysts said these companies were operating in a legal grey zone, raising concerns whether they would be allowed to continue operations.
Offshore investment by Chinese individuals are tightly controlled under the current rules. Traditionally, investors can only trade overseas equities through a programme called “QDII” which offers quotas to select institutions. Each Chinese citizen faces an annual exchange swap cap of US$50,000.
In recent months, a number of mobile apps have appeared which help investors to trade offshore shares using US or Hong Kong dollars held in their domestic accounts.
Tiger Securities, Futu Network, and Jimu Stock, were listed as examples by the CSRC. But the regulator did not clarify if these platforms were illegal, nor did it indicated they would be forced to close.
“According to the Securities Law, without the approval of the securities regulator under the State Council, none of the individual or institution can run brokerage business. Also, overseas brokerage companies should get regulator’s approval to run brokerage business inside China,” the CSRC statement said.
A source close to the regulator said the case exposed “a blind spot” in the current rules.
“Companies like Tiger Securities are actually connected to brokerages run outside China. There are a lack of rules to regulate this business,” she said.
A customer service rep with Tiger Securities said their platform was linked to Interactive Brokers, a brokerage firm registered with the US Securities and Exchange Commission. But she would not clarify if they have gotten permission from the CSRC to obtain clients in China.
None of the three institutions listed by the CSRC has brokerage licenses in China. They are registered with local industrial and commercial authorities as “tech companies”.
Tiger Securities, backed by Chinese smartphone maker Xiaomi, said turnover on its platform had surpassed US$100 million in July, the first month its mobile app was put into operation.
“The current size of the market is still small, compared to the A-share market which saw average daily turnover of several hundred billion. However, it has already aroused the attention of regulators as it may release huge potential demand from Chinese people to invest overseas...it will further weigh on the capital outflow pressure,” said a source close to Tiger Securities, who asked to remain anonymous.
“By using the internet platforms to trade the overseas market, investors will have their accounts and money offshore. Once a disputes happen, the interests of investors will lack effective protection,” the CSRC said.
“According to current laws and rules, citizens in the Chinese mainland can invest in the overseas equities markets by buying into QDII funds, or by using the Shanghai-Hong Kong stock connect programme,” the CSRC said.
The regulator urged investors to use legal channels “to avoid being cheated”.