Futu and Tiger Brokers find themselves in a somewhat awkward position at present.
In the past, buying Hong Kong and US stocks was enough to deter many people at the stage of researching account opening and funding. Futu and Tiger Brokers moved these tasks onto mobile phones and paired them with Chinese-language services, so that many mainland investors felt for the first time that buying shares in an American company was not so troublesome after all. They built up their business on this group of people and spent years on investor education, yet now they have to face continued tightening of their mainland business.
On May 22 this year, the CSRC and seven other departments published a comprehensive rectification plan, setting a two-year concentrated rectification period for illegal cross-border securities, futures and fund business activities. Unapproved domestic marketing, account opening and trading services are to be banned, and existing illegal business is also to be subject to restrictions on purchases and inbound transfers of funds, with gradual clearance. The clients and trading that took so much effort to build up can no longer be continued in the same way.
Investors themselves are not necessarily much affected. People who want to buy Nvidia still want to buy Nvidia; and those who wish to allocate overseas assets will not suddenly drop the idea just because a brokerage can no longer open an account for them. There are always more solutions than difficulties: the exchanges once used to trade virtual currencies can now, surprisingly, already buy US stocks.
This makes things even more uncomfortable for Futu.
It could previously compete with peers on Chinese-language services, trading experience and commissions, but now it finds that the clients it cultivated over the years may have become exactly Binance's new users. A competitor that was not originally on the brokerage list has started to compete for the same business.
Crypto exchanges with debts so numerous they no longer worry
Futu was originally in the securities business, and it has to maintain licensed entities, banking channels and the operations of a listed company. Once mainland regulatory requirements change, it has to clear existing business and deal with clients and funds; the rectification costs real money, and the trading it does less of is also money it could originally have earned. For a company like this, having its business restricted is of course a very large loss.
The position of offshore crypto exchanges is different.
They provide virtual currency trading services to the mainland, which was never permitted in the first place. Adding a US stock business does not involve a brokerage licence that could originally be used in the mainland and that they now fear being taken away. In my view, this easily gives operators a certain mindset: since their main business has long been unrecognised in the mainland, why bother waiting for mainland recognition when adding a stock business?
"Debts so numerous they no longer worry" describes exactly this mindset.
The securities business will likewise carry legal liability, but the exchanges will not calculate the gains and losses of this business entirely according to Futu's accounts. In overseas markets where they are permitted to conduct business, they can still connect brokers and add products, turning an account originally used for trading coins into a place for buying and selling more assets.
For people who already hold stablecoins on exchanges, this is particularly attractive.
In the past, if you wanted to buy Nvidia, you first had to consider how to transfer money to a broker. Now the platform itself offers stock trading, so there is one less money transfer and one less app to switch to, and the trade will very likely be done right there. If Futu wants to win that money back, a Chinese-language interface and low commissions alone may no longer be enough.
Binance's direct stock service, launched in June this year, is still executed and custodied by a broker behind the scenes. According to data it disclosed in July, in the first month after launch users purchased more than US$1 billion worth of U.S. stocks, with trading volume of about US$3 billion. Once a crypto trading platform connects to a broker, it can sell U.S. stocks to its own users, and customers no longer need to find another securities firm first.
Tokenized stocks have also reached scale. As of October 15, more than four months after Binance launched bStocks, assets under the product exceeded US$1 billion and cumulative trading volume exceeded US$40 billion; the xStocks ecosystem, in which platforms such as Kraken participate, disclosed trading volume of more than US$45 billion as of October 29. Such tokens are backed by underlying securities, but holding the token does not mean directly becoming a shareholder of the listed company. For people who only want to participate in a stretch of market movement, that distinction may not be enough to make them leave their original platform.
Some tokenized stocks can also be transferred to wallets and used as collateral, while stock perpetual contracts allow trading on share price movements and do not themselves represent ownership of shares. The rights and risks of different products are not the same, yet they are all being packed into the same account. The "one account to trade the world" that many brokers once spoke of is, in fact, finding more and more uses on crypto exchanges.
CRS will also become a factor that more and more people weigh when trading on crypto exchanges. As information on traditional financial accounts becomes more transparent, some people may feel that crypto accounts can still leave a little room for concealment. That perception itself may influence which platform they choose. However, the Crypto-Asset Reporting Framework (CARF) is also moving forward; genuine stock business may be subject to the existing reporting rules, and whether reporting actually occurs will depend on how far service providers take compliance, but to be conservative, a grey window of one to three years will exist in any event, since water flows toward the low ground of compliance.
The U.S. government's own calculations
In the United States, regulators are also continuously opening windows for crypto exchanges to engage in stock trading.
On September 17, the U.S. Securities and Exchange Commission (SEC) published an "innovation exemption" for specified tokenized stock trading venues and liquidity providers, with a term of five years after publication. Qualifying on-chain stock trading may operate under this arrangement first. It imposes limits on the trading instruments and volumes, requires tokenized stocks to provide the corresponding rights of traditional stocks of the same class, and, for third-party tokenization, requires giving the underlying issuer notice and an opportunity to object.
Existing offshore stock tokens cannot all be deemed to have obtained this exemption. However, U.S. regulators are already willing to create a dedicated pilot rule set for securities on-chain, which will give institutions preparing to enter this business more incentive.
From Trump's support for stablecoins, it is not hard to see what this U.S. administration has in mind. In July last year, he signed the GENIUS Act, establishing a federal regulatory framework for payment stablecoins. Stablecoin reserves are held in assets such as U.S. dollars and short-term U.S. Treasuries, and as users around the world hold and use these stablecoins, there is an opportunity to increase demand for the U.S. dollar and U.S. Treasuries.
The White House itself has also treated the various financial innovations surrounding crypto as a policy benefit.
In my view, the United States is quite happy to see this outcome: people can be anywhere in the world, yet their money is denominated in US dollars, and their investments are still in US assets, whether it is Bitcoin mined in the United States or global companies listed on US exchanges.
The clients brought in by Futu buy US stocks, and the clients brought in by Binance can also buy US stocks, while stablecoins further create demand for US dollars and US Treasuries. After all these years of talking about financial innovation, the crypto industry has ultimately become a distributor of global US dollar assets, which the United States naturally welcomes.
The Wave That Got Washed Ashore
Futu sustains its business through securities trading, and stocks are its core business. For an exchange like Binance, US stocks are merely one service among others for retaining clients. How much the stock business itself earns can be calculated together with other businesses in the account. As long as the money does not flow out, the platform still has business when users next want to trade other assets. The competition Futu faces is hard to resolve simply by adjusting commissions.
Therefore, I would place Binance on the list of competitors Futu should take most seriously. Regulators have tightened Futu's original way of conducting business, while exchanges are approaching the group of people who still want to invest overseas. Futu taught them to buy US stocks; Binance lets them conveniently buy elsewhere. What they buy is still those US companies; what may be replaced is only Futu.
Moreover, for Binance to offer US stocks, it does not need to redo all the work of a brokerage from scratch. Execution, clearing, and custody can be connected to the existing securities system. What it competes for is which app users open and where they initiate trades. The back end still requires licensed institutions, but front-end clients can remain on the exchange. For a brokerage that won clients through the internet back in the day, this is probably the most familiar and also the least welcome situation.
