2022 is for locking new additions, 2026 is for managing existing stock

Let’s unfold the timeline; many misjudgments come from conflating these two rounds of remediation into a single event.

In 2022, the regulation was focused on turning off the faucet, preventing new water from coming in. For 2026, it is no longer only about restricting additions; rather, it involves starting to drain existing “old water.” The most essential difference between the two can be summarized in one sentence:

• In 2022: Existing clients can continue to trade.
• In 2026: Existing clients cannot buy any more; they can only sell their held securities and transfer the funds out.

This is why the market reaction was so significant. For internet brokerage firms, restricting new account openings harms the growth trajectory; while existing clients only selling rather than buying damages trading activity, retention rates, capital accumulation/settlement, margin trading and securities lending, and wealth management conversion. The former signals a slowdown in the growth narrative, and the latter implies a re-evaluation of the entire business model.

Many areas have been clarified, while those yet to be public are also extremely crucial

Regarding the external dimensions/opening diameter, quite a few parts have actually been clearly specified.

First, the object of regulation is not merely the app name, but the entire “illegal cross-border investment chain.” The plan from the eight departments states this very clearly, aiming to comprehensively rectify activities such as illegal solicitation, account opening, trading, fund transfer, and promotional traffic channeling. Furthermore, the CSRC (China Securities Regulatory Commission) defined the issue during a press briefing as a new type of illegal and non-compliant activity that is “more covert and poses greater danger.”

Secondly, the severity of the actions is heavier than in 2022. The CSRC’s public statement on May 22nd was escalated to “intended to confiscate all illegal gains of related entities of Tiger, Futu, and Changqiao both domestically and internationally, and severely penalize according to law.” Later that day, the own SEC disclosures from the two US-listed platforms pushed the market’s most concerned point—the “magnitude”—forward one step: Futu, according to its public statement, has proposed total fines and confiscations roughly at 1.85 billion RMB; while Tiger disclosed that the combined amount already fined and confiscated is approximately 411 million RMB.

Third, they gave a two-year concentrated rectification period. This “two years” is very important, but it cannot be simply understood as “everything remaining the same for two years.” The public statements suggest exactly the opposite; during the intensive rectification period, existing clients are required only to sell and not buy. The two years are more like a clearance window, not a free trading window.

What truly unsettles the market are the sections that have not been fully disclosed. These gaps cannot be filled by rumors, nor can they write out implementation dates for regulators.

• Regarding the buy prohibition, when exactly will it take effect on the front-end systems of various firms? The public materials do not provide a unified and fixed date.
• How was the total amount of RMB 1.85 billion related to Futu broken down? The public documents have not yet elaborated on how this is allocated among illegal gains, penalty multipliers, and the involved parties.
• What is the subsequent plan for existing assets—will they be liquidated and exited, transferred to a compliant channel, or will the

These ambiguities will directly translate into valuation discounts. Because the worst-case assumptions are unknown, the market will initially calculate based on overly conservative standards.

The “13% Customer Count” Does Not Influence the Estimation

A statement from Futu in its response that has circulated widely is: “As of the end of Q1 2026, the proportion of asset clients in mainland China relative to the group’s total number of asset clients has dropped to 13%, while overseas asset clients continue to climb.”

This finding cannot be dismissed as useless, but it is nowhere near enough to calculate the potential impact on profit.

The problem is that it only gave the “percentage of customers,” but did not provide the two most critical items:

• Proportion of Mainland Client Assets
• Share of Transaction Volume or Commission Contribution from Mainland Clients

These two items are unavailable, so the 13% figure cannot be directly mapped to the profit impact. Online brokerages fear this kind of metric misalignment: fewer clients do not mean lower assets, nor does it mean weak trading activity. Especially long-term users often have larger capital, higher turnover rates, and stronger financing needs; the commercial value of a single account may not be low.

What can be seen in Futu’s recently disclosed financial reports is that the group’s overall metrics are still very strong. Both the 2025 annual financial report and the yearly report disclose that total client assets have reached HKD 1.23 trillion, 2025 revenue was HKD 22.8 billion, and funded accounts amounted to 3.365 million. This indicates that the company’s internationalization efforts over the past few years have genuinely taken off. However, this same set of public materials does not separately break down “the proportion of assets and transaction volume from mainland Chinese clients.”

Therefore, it is normal that the market is currently skeptical. It’s not a lack of belief in internationalization; rather, they are unsure what residual weight or potential mainland existing clients hold regarding asset and transaction activity dimensions. Client count is a headcount metric; valuation cares more about metrics related to assets, transactions, financing, and monetization.

This is not a typical negative factor for fines

Failing to recover quickly after a pre-market drop exceeding 40% was fundamentally due to the non-linear nature of this downward pressure/negative catalyst.

If it were merely fines in the tens of millions, the market would account for a one-time loss. However, the current public figures have been raised to approximately RMB 1.85 billion for Futu and RMB 411.2 million for Tiger, a magnitude that is clearly not a “small scratch.” If it were only about stopping new additions, the market would estimate slowing growth. But if the rule becomes “existing inventory only allowed to be sold, not bought,” what the market must re-evaluate is:

It’s more like a three-layer discount happening simultaneously:

• Decline in transaction frequency
• Account asset outflow
• Rising compliance costs and uncertainty

To add another layer: whether we can still achieve incremental growth through the grey areas in the future; the current public narrative has essentially eliminated any room for speculation.

Therefore, this wave of stock price movement is not merely an emotional fluctuation; it seems more like regulators bringing a long-standing but unpriced risk onto the table all at once. The difficulty isn’t ‘how much they will fine,’ but rather how to monetize or convert the remaining existing assets/volume into revenue.

My Current Assessment

My judgment is straightforward: The round of enforcement on May 22, 2026, will not be a rerun of the old news from 2022, but rather an upgraded version of the previous cleanup effort. Furthermore, it has shifted from “forbidding continued expansion” to “requiring the shrinkage of existing capacity.”

For investors holding stocks such as Futu or Tiger, what they should pay attention to next is not community sentiment, but three types of public information:

• Each brokerage firm’s own implementation announcement, especially the start date of buying restrictions
• The calculation methodology/scope for “illegal gains” in penalty documents or subsequent formal decisions
• Whether there are supporting measures such as asset transfer, account categorization, or regional isolation

This article first clarifies “what exactly distinguishes this time from the last time.” The next article will separately analyze the implementation window: referencing the period between policy implementation and when Hong Kong stock brokers truly prohibited buying on their front ends for mainland clients utilizing Stock Connect. While this reference point helps with understanding, it cannot be mechanically applied to this current rectification effort.

References

Notes on Writing

Original Prompts

Today's sudden news regarding HK/US stock trading involves illegal cross-border operations, with institutions like Tiger Securities being seriously investigated. Futu and Tiger fell 40% before market open. First, let's review the last regulatory investigation by the CSRC (China Securities Regulatory Commission). That time, it completely locked down new account openings for domestic users, but existing clients were unaffected. This time, however, trading for existing clients is being restricted.
Last year or the year before, Hong Kong stock brokers were banned from doing business with mainland clients transacting through Stock Connect. Searching for relevant policies and confirming how long there was an interval between policy implementation and broker enforcement: banning mainland users from buying? Today's news says there will be a two-year grace period to clear out holdings, but it doesn't specify when the ban on buying will begin. It also doesn't specify how long the illegal gains will be retroactively tracked. Even though Futu issued an announcement, as of the end of Q1 2026, the proportion of asset clients in Mainland China relative to the group's total asset client base has dropped to 13%. Meanwhile, under the group's effective internationalization strategy, the number of overseas asset clients continues to climb. Only customer numbers are available; asset size and trading volume percentage are the two critical factors missing. The stock price is still dropping; it hasn't rebounded. Many related incidents have occurred; compiling a timeline and splitting this into a series of articles. This time, eight departments are involved! They comprehensively rectified illegal cross-border operation of

This rewrite retains the original manuscript's timeline, official documents, and company disclosure narratives, but narrows the scope of the first article to "the difference between newly added restrictions and existing inventory disposal." The account execution window and other brokerage differentiations will no longer be covered in this piece; they are reserved for the following two articles.