Source: Gelong
May 22, 2026, a heavyweight regulatory move hit China's capital market: The China Securities Regulatory Commission (CSRC) and seven other government departments jointly issued the "Implementation Plan for the Comprehensive Rectification of Illegal Cross-Border Securities, Futures, and Fund Business Activities".
On the same day, the CSRC served advance notice of administrative penalties to three internet brokerages—Futu, Tiger Brokers, and Longbridge—proposing to confiscate all illegal gains of their relevant domestic and overseas entities and imposing heavy penalties in accordance with the law.
Upon the release of the news, the pre-market stock prices of Futu Holdings and Tiger Brokers plummeted, with declines once exceeding 40% and 45% respectively. The market capitalization of the two companies evaporated tens of billions of US dollars overnight, instantly causing an uproar across the entire market.
This regulatory action, dubbed the "final battle in the crackdown on cross-border brokerages," will completely end the gray era of unlicensed operation of overseas brokers in the mainland market, reconstructing the entire market landscape for mainland residents' cross-border investments.
01
The core legal basis for this special rectification stems from the fundamental principle of "licensed operation of securities business and territorial management of licenses" explicitly stipulated in the Securities Law.
China's legal system clearly stipulates: Any overseas financial institution, without approval from the China Securities Regulatory Commission, shall not engage in profit-making securities business within China, including securities brokerage, marketing and solicitation, trade matching, fund transfers, etc. Financial licenses from overseas jurisdictions are not valid for conducting business within China.
The core illegal act of institutions like Futu and Tiger lies in the fact that, without approval from the CSRC and without obtaining domestic business licenses for securities brokerage, margin trading, etc., they previously conducted full-chain services—including marketing, account opening, trade order processing—targeting mainland investors through their domestic affiliates, apps, and online platforms, generating profits. This constitutes a typical case of "driving without a license."
The joint action by the eight departments this time aims to completely plug this regulatory loophole. Such gray-area maneuvers exploiting gaps will be rendered completely unworkable from now on.
02
Orderly cross-border capital flows are the cornerstone of China's macro-financial regulation, exchange rate stability, and foreign exchange reserve security.
Currently, China implements a system of gradual capital account opening, relying on compliant channels such as QDII and Stock Connect to achieve orderly cross-border fund flows that are monitorable, adjustable, and risk-controllable.
However, many people previously used cross-border brokerages to trade stocks. To bypass the annual $50,000 foreign exchange purchase limit, they would transfer funds abroad through methods like splitting forex purchases, private transfers, or underground banks.
This created a trillion-level, completely unregulated funding tunnel, entirely detached from the foreign exchange management and financial regulatory system.
Such disorderly capital flows not only weaken the effectiveness of monetary policy and macroprudential regulation but, amid intensified global capital market volatility and Federal Reserve monetary policy adjustment cycles, may also trigger concentrated capital outflows, impacting the stability of the RMB exchange rate and foreign exchange reserves, and breeding systemic financial risks.
This round of rectification, by cleaning up illegal cross-border trading channels, also aims to reshape the cross-border capital flow control system and safeguard the bottom line of national financial security.
Simultaneously, illegal cross-border securities businesses have always suffered from structural weaknesses, including regulatory absence and lack of recourse for rights protection.
Mainland investors participating in trading through overseas brokers cannot be protected by domestic laws throughout the entire process. Issues such as account freezing, fund misappropriation, trading disputes, and platform risk control failures occur frequently, and investors struggle to seek redress through local regulatory or judicial channels.
These illegal platforms also hoard vast amounts of mainland user identity data, transaction records, and fund transfer information. The storage, transmission, and use of this data all fall outside the jurisdiction of domestic data security regulations, posing high risks of personal information leakage and data security breaches.
This round of severe regulatory crackdown aims to fundamentally strengthen the risk defenses for ordinary investors in cross-border investments, eliminate industry chaos characterized by high-risk trading and lack of rights protection, and promote investor rights protection in cross-border investments onto a path of legalization and standardization.
China's capital account opening to the outside world adheres to the principle of steady progress, following the rule of opening up one item when it matures. Formal investment channels like QDII and Stock Connect are important tools for maintaining stable regulation of the financial market.
The regulatory authorities also hope that through this rectification, funds will be forced to flow towards compliant channels, facilitating macro-control and risk management, while simultaneously promoting the improvement of compliant channels to gradually meet the cross-border investment needs of ordinary investors.
03
The impact of this regulatory crackdown on these cross-border brokerages is undoubtedly direct and significant.
Firstly, their domestic business is completely banned. Existing clients can only sell, not buy. At the same time, they face increased compliance pressure from cross-border regulatory collaboration. This will have a substantial impact on their overall business operations and future prospects.
Secondly, they face the consequence of having all illegal gains confiscated and being severely penalized in accordance with the law. According to estimates, the illegal gains from domestic operations for just Futu and Tiger Brokers alone may amount to several billion yuan.
Currently, the pre-market declines for Futu Holdings and Tiger Brokers once exceeded 40% and 45%, with market capitalization evaporating over ten billion US dollars, sufficiently reflecting the strong intensity of the shock.
According to estimates, currently, Futu, Tiger, Longbridge, and various small and medium-sized overseas cross-border brokers collectively hold 900,000 to 1.2 million mainland users with asset holdings.
According to Futu's latest Q1 2026 disclosure, the proportion of mainland users with assets has dropped to 13%. Institutional estimates suggest this corresponds to approximately 438,000 effective mainland users with asset holdings.
Tiger Brokers had 1.25 million global users with assets at the end of 2025. Industry estimates place its mainland non-compliant user proportion at 20%-25%, corresponding to 300,000-310,000 mainland users with asset holdings.
Longbridge Securities, as a core second-tier player in the industry, has no publicly available financial data. Institutional estimates place its mainland users with asset holdings at around 100,000-150,000.
According to Doubao AI data, including scattered users and assets from other small and medium-sized overseas cross-border brokers, the total number of mainland non-compliant users with asset holdings across the industry may currently be 900,000 to 950,000, corresponding to a total cross-border asset scale of approximately 250-280 billion yuan, and the actual figure could be even higher.
04
According to institutional estimates, these non-compliant cross-border fund holdings are highly concentrated, with most funds deployed in three major sectors: U.S. tech giants, China concept stocks (CCS), and Hong Kong new economy stocks.
Now, these users will be forced to complete their exit within 2 years, only able to sell their holdings and unable to continue buying.
This means these funds will become absolute sellers, subsequently exerting sustained and significant selling pressure on Hong Kong stocks and China concept stocks.
It is expected that concentrated selling may occur in the initial phase of the exit, bringing correction pressure to Hong Kong stocks and CCS, especially in tech stocks, internet stocks, and new consumer stocks favored by mainland investors.
The sustained one-way selling pressure over 2 years, coupled with foreign capital likely avoiding these stocks upon seeing this situation, triggering more selling, could potentially alter the supply-demand dynamics for Hong Kong stocks and CCS, possibly lowering the valuation center.
Of course, high-quality leading companies may show resilience due to good liquidity and reasonable valuations, but most small-cap and concept stocks will likely face greater adjustment pressure.
In the long term, the continuous exit of mainland retail investors' non-compliant funds will, to some extent, lead to the transfer of pricing power for Hong Kong stocks and CCS towards overseas institutions. Market trading logic will also shift from sentiment-driven to fundamentals-driven, with sectoral structural differentiation continuing to widen.
05
After regulators block illegal cross-border channels, what impact will this have on the domestic market?
Nearly a million retail investors trading Hong Kong and U.S. stocks (most of whom also trade A-shares), involving hundreds of billions in funds, may gradually return over the next two years. Although the scale may not seem huge, the local impact could be significant.
First, after illegal cross-border channels are blocked, a structural gap will emerge in domestic cross-border investment channels.
On one hand, the 500,000 yuan asset threshold for opening a Stock Connect account is sufficient to block over 99% of ordinary investors;
Not only that, but mainland retail investors will have no compliant direct personal investment channel left to trade U.S. stocks, no longer able to buy dazzling tech giants like NVIDIA, Tesla, TSMC, Apple, Broadcom, or Micron.
On the other hand, domestic investors' demand for cross-border investment in high-quality growth sectors like AI, global technology, and overseas consumer goods will inevitably persist and continue to rise. This potentially trillion-level investment demand will be entirely concentrated into the single compliant outlet of QDII.
However, simultaneously, QDII quotas are strictly controlled in aggregate by the State Administration of Foreign Exchange (SAFE), with slow expansion. Mainstream Nasdaq, S&P 500, and tech-focused QDII funds have long been in rigidly scarce supply, completely unable to meet the large-scale allocation demands of ordinary investors.
Reports indicate that as of April 2026, the total QDII quota was approximately $176.2 billion, with equity-related portions around $97.3 billion. A new $5.3 billion quota added in March 2026 was exhausted within days by popular products.
Among the approximately 330 QDII funds in the market, over 60% are under purchase limits/suspension. Daily purchase limits of 10 yuan or 100 yuan have become the norm for popular Nasdaq/S&P 500 funds.
More crucially, quota scarcity leads to the long-term closure of primary market subscription channels for QDII funds. The secondary market price is entirely determined by supply and demand, inevitably causing funds to pile in and continuously push up secondary market prices, leading to severe, abnormally high premiums becoming the norm.
This market characteristic is highly consistent with the logic behind the extreme premium scenarios seen in products like SDIC Silver LOF and overseas oil & gas ETFs a few months ago.
Currently, mainstream U.S. stock QDII ETFs maintain significant premium rates for extended periods, with semiconductor and tech sector-specific QDIIs having even higher premiums.
In the future, as cross-border investment demand continues to accumulate and QDII supply struggles to match 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 might be another potential benefit.
Previously, a large amount of mainland retail capital flowed overseas, primarily deployed in U.S. AI, semiconductor, internet tech stocks, and Hong Kong new economy leaders, essentially chasing premium opportunities in global high-growth tech assets.
With cross-border investment channels restricted, this portion of capital, characterized by higher risk appetite and a focus on tech growth, will gradually flow back to A-shares, moving into core tech sectors like AI computing power, semiconductors, high-end manufacturing, and the digital economy.
Especially those hardcore tech leaders with strong earnings certainty, high technological barriers, and vast sector potential may attract this incremental capital.
However, it is important to note that current valuations for A-share core sectors like AI, semiconductors, and artificial intelligence, after multiple rounds of market rallies, are already at historically high intervals. P/E and P/B ratios for some sub-sectors have already touched valuation ceilings.
The influx of speculative capital from cross-border fund repatriation may further push up sector valuations, detaching them from fundamental support and fostering short-term bubbles.
For investors, it is necessary to abandon pure thematic speculation mentality, avoid high-valuation bubble risks, focus on quality targets with strong earnings delivery capabilities, and be wary of correction risks.
Conclusion
The regulatory authorities' severe crackdown on illegal cross-border brokerage operations is not a "one-size-fits-all" shutdown of cross-border investment channels. It is a systematic measure to regulate market order, prevent financial risks, protect investor rights, and advance compliant opening-up.
For enterprises, compliant operation is the baseline for survival and development. Any attempt to gain short-term benefits by circumventing regulation will ultimately come at a heavy cost.
For investors, this rectification may bring short-term inconvenience, but in the long run, it is a necessary step to build a safer and more standardized cross-border investment environment.
Investors should abandon the mindset of seeking "shortcuts" and participate in cross-border investments through legal channels such as QDII and Stock Connect. These channels are protected by domestic laws and have robust investor protection mechanisms.
The healthy development of the capital market requires the joint efforts of regulators, enterprises, and investors.
