Eight departments take strong measures to regulate cross-border brokers, what do you think?
Source: Ge Long
On May 22, 2026, China's capital market faced a significant regulatory change: the China Securities Regulatory Commission (CSRC) and eight other departments jointly issued the "Implementation Plan for Comprehensive Rectification of Illegal Cross-Border Securities, Futures, and Fund Operations."
On the same day, the CSRC issued advance notice of administrative penalties to three internet brokerages: Futu, Tiger Brokers, and Changqiao, proposing to confiscate all illegal gains of the three institutions' domestic and foreign related parties and impose severe penalties according to the law.
Following the news, the pre-market stock prices of Futu Holdings and Tiger Brokers plummeted, with declines exceeding 40% and 45% respectively at one point, resulting in a market value loss of hundreds of billions of dollars overnight for both companies, causing the entire market to erupt.
This regulatory action, referred to as the "Final Battle for Rectification of Cross-Border Brokers," will completely end the gray era of unlicensed operations by foreign brokers in the domestic market and reshape the market landscape for cross-border investments by mainland residents.
01
The core legal basis for this special rectification stems from the Securities Law's clear principle of "licensed operation of securities business and territorial management of licenses."
China's legal system explicitly states that any foreign financial institution must not engage in securities brokerage, marketing solicitation, transaction matching, fund transfer, and other operational securities businesses within the territory without approval from the CSRC. Financial licenses from foreign jurisdictions do not have operational validity within the country.
The core illegal facts of institutions like Futu and Tiger Brokers lie in their operations without approval from the CSRC and without obtaining licenses for domestic securities brokerage, margin financing, and other businesses. Before being ordered to cease operations by regulators, they profited by providing a full chain of services such as marketing, account opening, and transaction instruction processing to domestic investors through domestic affiliated entities, apps, and online platforms, constituting typical "unlicensed operation."
The joint action by the eight ministries is aimed at completely closing this regulatory loophole, making such gray operations unfeasible in the future.
02
Orderly cross-border capital flow is a core cornerstone of China's macro-financial regulation, exchange rate stability, and foreign exchange reserve security.
Currently, China implements a gradual opening system for capital projects, relying on compliant channels such as QDII and Hong Kong Stock Connect to achieve orderly capital flow that is monitorable, controllable, and risk-manageable.
However, many people previously used cross-border brokers for stock trading to circumvent the annual $50,000 foreign exchange purchase limit by splitting currency exchanges, private transfers, and underground banks to move money out.
This created a trillion-level, completely unregulated capital dark channel, completely detached from foreign exchange management and financial regulatory systems.
Such disorderly capital flows not only weaken the effectiveness of monetary policy and macro-prudential regulation but also, under the backdrop of intensified global capital market volatility and adjustments in the Federal Reserve's monetary policy, may trigger concentrated capital outflows, impacting the renminbi exchange rate and the security of foreign exchange reserves, breeding systemic financial risks.
This rectification aims to close illegal cross-border trading channels and reshape the cross-border capital flow control system, safeguarding the bottom line of national financial security.
At the same time, illegal cross-border securities businesses have always faced structural shortcomings in regulatory gaps and lack of avenues for rights protection.
Mainland investors participating in transactions with foreign brokers cannot receive legal protection under domestic law throughout the process, leading to frequent issues such as account freezes, fund misappropriation, trading disputes, and platform risk control failures. Investors also find it difficult to seek rights protection through local regulatory and judicial channels.
These illegal platforms also hoard a large amount of identity information, transaction records, and fund transaction information of mainland users, with data storage, transmission, and use completely detached from domestic data security regulations, posing high risks of personal information leakage and data security breaches.
This round of regulatory crackdown aims to strengthen the risk prevention line for ordinary investors in cross-border investments from the source, eliminate high-risk trading and the chaotic industry without rights protection, and promote the legal and standardized protection of cross-border investors' rights.
China's capital project opening adheres to a principle of steady progress, following the guideline of opening one item after maturing another. QDII, Hong Kong Stock Connect, and other formal investment channels are important tools for maintaining stable regulation of the financial market.
Regulators also hope that through this rectification, funds will be forced to flow into compliant channels, facilitating macro-control and risk management while promoting the improvement of compliant channels to gradually meet the cross-border investment needs of ordinary investors.
03
The impact of this regulatory rectification on these cross-border brokers is undoubtedly direct and significant.
First, their domestic operations are completely prohibited, and existing clients can only sell but not buy, while also facing increased compliance pressure from cross-border regulatory cooperation, which greatly affects the overall business operations and subsequent impacts on the companies.
Second, they will also face the consequences of confiscation of all illegal gains and severe penalties according to the law. It is estimated that the illegal gains of just Futu and Tiger Brokers in the domestic market may reach tens of billions.
Currently, the pre-market declines of Futu Holdings and Tiger Brokers exceeded 40% and 45%, with a market value evaporating by over $10 billion, sufficiently reflecting the intensity of the impact.
It is estimated that currently, Futu, Tiger, Changqiao, and various small and medium-sized foreign brokers have a total of 900,000 to 1.2 million mainland users with asset holdings.
According to the latest disclosure from Futu in the first quarter of 2026, the proportion of mainland clients with assets has dropped to 13%, with institutional estimates suggesting there are about 438,000 effective mainland users with assets.
Tiger Brokers reported 1.25 million global clients with assets at the end of 2025, with industry estimates maintaining that the proportion of compliant mainland clients is between 20% and 25%, corresponding to about 300,000 to 310,000 mainland users with assets.
Changqiao Securities, as a core institution in the second tier of the industry, does not have publicly available financial report data, but institutional estimates suggest it has about 100,000 to 150,000 mainland users with assets.
According to Doubao AI data, combined with other small and medium-sized foreign cross-border brokers' scattered users and assets, the total number of compliant mainland users with assets in the entire industry may currently be around 900,000 to 950,000, corresponding to a total cross-border asset scale of about 250 billion to 280 billion yuan, and it may actually be more.
04
According to institutional estimates, these compliant foreign cross-border funds are highly concentrated, with most funds allocated to three major sectors: leading U.S. tech stocks, Chinese concept stocks, and new economy stocks in Hong Kong.
Now, these users will be forced to complete their exit within two years, only able to sell their holdings and unable to continue buying.
This means that these funds will turn into absolute shorts, which will exert continuous and significant selling pressure on Hong Kong and Chinese concept stocks.
It is expected that in the initial phase of the exit, there may be concentrated selling, bringing adjustment pressure to Hong Kong and Chinese concept stocks, especially in technology stocks, internet stocks, and new consumer stocks favored by mainland investors.
Moreover, the sustained one-way selling pressure over two years, coupled with foreign capital observing this situation and avoiding it, may trigger more fund sell-offs and potentially change the supply-demand dynamics for Hong Kong and Chinese concept stocks, possibly leading to a downward shift in valuation centers.
Of course, high-quality leading companies may resist declines due to good liquidity and reasonable valuations, but most small-cap stocks and concept stocks are likely to face greater adjustment pressure.
In the long run, the exit of illegal funds from mainland retail investors will continue to affect the transfer of pricing power for Hong Kong and Chinese concept stocks to overseas institutions, and the market trading logic will shift from being driven by sentiment to being driven by fundamentals, with structural differentiation in sectors continuing to amplify.
05
After the regulatory closure of illegal cross-border channels, what impact will it have on the domestic market?
Nearly a million stock investors trading Hong Kong and U.S. stocks (most of whom are also trading A-shares) are involved with hundreds of billions in funds, which may gradually return over the next two years. Although the scale may not seem too large, the localized impact is significant.
First, after the closure of illegal cross-border channels, there will be a structural gap in domestic cross-border investment channels.
On one hand, the 500,000 asset threshold for opening accounts in Hong Kong Stock Connect will intercept over 99% of ordinary investors.
Not only that, mainland investors will have no compliant channels for direct investment in U.S. stocks, and will no longer be able to buy dazzling tech giants like Nvidia, Tesla, TSMC, Apple, Broadcom, and Micron.
On the other hand, the demand for cross-border investments in quality growth sectors such as AI, global technology, and overseas consumption from domestic investors will inevitably persist and continue to rise, potentially reaching trillions in investment demand, all concentrated in the single compliant outlet of QDII.
However, at the same time, the total quota for QDII is strictly controlled by the foreign exchange authority and expanded slowly. The mainstream Nasdaq, S&P 500, and tech-related QDII funds have long faced rigid supply shortages, and the large allocation needs of ordinary investors cannot be released at all.
According to reports, as of April 2026, the total QDII quota is about $176.2 billion, of which about $97.3 billion is for equity funds. The newly added $5.3 billion quota in March 2026 was exhausted within days by popular products.
Among the 330 QDII funds in the market, over 60% are in a state of purchase limitation or suspension. Popular Nasdaq/S&P 500 funds often have daily purchase limits of 10 yuan or 100 yuan.
More critically, the scarcity of quotas has led to the long-term closure of the primary market subscription channels for QDII funds, and the prices in the market are entirely determined by supply and demand, which will inevitably lead to a continuous influx of funds pushing up market prices, resulting in severe overpricing becoming normalized.
This market characteristic is highly consistent with the extreme premium market logic of Guotou Silver LOF and overseas oil and gas ETFs in recent months.
Currently, mainstream U.S. stock QDII ETFs maintain a significant premium rate, with semiconductor and tech sub-sector QDII premiums even higher.
In the future, as cross-border investment demand continues to accumulate and QDII supply fails to match the incremental demand, this structural premium anomaly will persist long-term, becoming a core pain point for ordinary investors seeking compliant cross-border investments.
06
For the domestic stock market, there may be another benefit.
Previously, a large amount of mainland retail investor funds flowed overseas, primarily investing in U.S. stocks in AI, semiconductors, internet technology, and leading new economy stocks in Hong Kong, essentially chasing premium opportunities in global high-growth tech assets.
After the restrictions on cross-border investment channels, this portion of risk-tolerant, tech-focused funds will gradually flow back to A-shares, targeting core tech sectors such as AI computing power, semiconductors, high-end manufacturing, and the digital economy.
Especially those leading hard tech companies with strong performance certainty, high technical barriers, and broad market space may attract this incremental funding.
However, it is important to note that the current core sectors in A-shares such as AI, semiconductors, and artificial intelligence have already reached historically high valuation ranges after multiple rounds of market speculation, with some sub-sectors' price-to-earnings and price-to-book ratios hitting valuation ceilings.
The influx of incremental speculative funds from returning cross-border capital may further push up sector valuations, detaching from fundamental support and creating temporary bubbles.
For investors, it is necessary to abandon the mindset of purely speculating on sectors, avoid high valuation bubble risks, focus on high-quality targets with strong performance realization capabilities, and remain vigilant against market correction risks.
Conclusion
The regulatory crackdown on illegal cross-border brokers is not a "one-size-fits-all" closure of cross-border investment channels but a systematic measure to regulate market order, prevent financial risks, protect investor rights, and promote compliant opening.
For enterprises, compliant operations are the bottom line for survival and development. Any attempt to gain short-term benefits by circumventing regulations will ultimately pay a heavy price.
For investors, this rectification may bring short-term inconveniences, but in the long run, it is a necessary measure to build a safer and more standardized cross-border investment environment.
Investors should abandon the mentality of "taking shortcuts" and participate in cross-border investments through legal channels such as QDII and Hong Kong Stock Connect, which are protected by domestic laws and have complete investor protection mechanisms.
The healthy development of the capital market requires the joint efforts of regulators, enterprises, and investors.
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