Hong Kong-based brokerages have started suspending clients' accounts from mainland China to comply with the country's ban on international brokers that are offering services without a local license.
Hong Kong Brokers Unloading Mainland Chinese Clients
As reported by Bloomberg on Monday, Hong Kong-listed Bright Smart Securities is sending notices to its mainland clients, suspending their accounts until further regulatory clarification. The Hong Kong unit of Chinese brokerage Guotai Junan Securities also issued a similar notice but later took it down from the public domain.
Bright Smart asked mainland Chinese clients to sell their securities holdings and withdraw funds by 23 February.
The decision has pushed down the Hong Kong-listed share prices of Bright Smart Securities by more than 12 percent, whereas Guotai Junan International's price dipped by only 1 percent.
China's Crackdown against International Brokers
The decisions of both brokerages came after the China Securities Regulatory Commission (CSRC) issued a warning to ban the services of two online brokerage operators, Futu Holding and UP Fintech Holding, for allegations of unlawful securities business. The regulator ordered them to stop onboarding new clients from mainland China.
International online brokerages operate in a grey area when onboarding clients from mainland China. These platforms do not require a local Chinese operating license, but their popularity in the country has forced the regulator to rethink its stance towards these companies.
Last year, a senior executive from the People's Bank of China (PBOC) said that "cross-border online brokerages are driving in China without a driver's license [and are] conducting illegal financial activities."
Though not officially confirmed, the move by the Chinese regulator is aiming at curbing the outflow of cash that is moving away from its strict capital controls. China currently allows citizens to invest in offshore securities and insurance under its $50,000 annual foreign currency quota. However, international online brokers allow clients to breach that cap.
Meanwhile, local Chinese brokers are raising significant capital from the market to comply with rules around minimum core net capital, quality liquid assets, and capital base. At least six publicly-listed Chinese brokers have raised up to 82.5 billion yuan ($12.2 billion) in private placements or rights issues.
