China's securities regulator seizes illegal gains in disruption of U.S. stock trading platforms

China’s Securities Regulatory Commission (CSRC) is cracking down on U.S. stock trading platforms, and it has reportedly seized illegal gains. The platforms have been placed on a two-year rectification period, during which they are to stop fund inflows and halt buy transaction offers.

The CSRC is working alongside eight other government departments to implement the “Implementation Plan for the Comprehensive Rectification of Illegal Cross-border Securities, Futures, and Fund Business Activities.” Investors have been limited to liquidating their assets (one-way sell trades) and withdrawing funds.

The CSRC is also targeting brokerages, including Futu Securities, Tiger Brokers, and Longbridge Securities. These platforms have facilitated account openings, trade executions, and margin trading for mainland Chinese citizens without the required domestic licenses. Authorities plan to seize all illegal gains derived from mainland clients and impose harsh penalties.

The regulatory action has shaken investor confidence and has caused the U.S.-listed and Hong Kong shares of the targeted firms to drop drastically. The pre-market share prices of companies like Tiger Brokers (UP Fintech) and Futu have dropped by 30% to 40% on major U.S. exchanges.

CSRC says ‘Rectification Plan’ proposes keen monitoring and inspection

A CSRC official stated that the “Rectification Plan” calls for comprehensive monitoring and inspection. It will intensify the scrutiny of internet platforms and related information and expand regulatory oversight of overseas institutions.

The plan is also expected to toughen investigations and penalties in significant cases, decisively address illegal cross-border business activities, and tighten oversight of cross-border securities, futures, and fund investments.

Additional measures include strengthening cross-border regulatory cooperation, safeguarding investors’ legitimate rights, improving policy communication and guidance, upgrading regulatory frameworks, and promoting compliant overseas investment channels.

The CSRC will lead the implementation of this plan. Meanwhile, the National Financial Regulatory Administration will be responsible for financial consumer protection and supervision of domestic banking institutions. 

The People’s Bank of China will deploy its anti-money laundering systems to support the effort. The State Administration of Foreign Exchange will oversee foreign exchange management.

At the same time, the State Administration for Market Regulation will strengthen registration supervision of relevant domestic business entities in accordance with the law. These agencies, alongside other relevant departments, will also tighten oversight of related advertising activities.

Notably, an estimated $1.04 trillion of “hot money” flowed out of China in 2025. CSRC officials have emphasized that the measures are designed to clean up the capital market environment and steer investors toward regulated channels for overseas investment.

CSRC-led initiative represents China’s tough stance on capital outflows 

The CSRC-led initiative marks a major escalation in China’s efforts to control capital outflows. It comes nearly three years after local retail traders were first blocked from accessing the apps of popular offshore brokerages.

Under the new initiative, overseas institutions will be banned from running marketing campaigns for securities, futures, and fund products in China. These institutions will also not be allowed to offer account-opening services, execute trades, or facilitate fund transfers for domestic clients.

Additionally, the crackdown extends beyond foreign firms. Chinese entities that assist such operations, including intermediaries that solicit investors or firms that provide websites, trading software, or customer support, will also be subject to enforcement action. The crackdown includes internet platforms and social media accounts publishing illegal promotional content. 

Banks will also be closely scrutinized. Banking institutions providing accounts for cross-border investment will be required to tighten compliance checks on foreign exchange transactions flowing out of China. Regulators are also expected to curb illicit capital outflows, including those routed through underground banking networks.

Meanwhile, the Ministry of Public Security will investigate and prosecute illegal business operations and other economic crimes. Local Chinese governments will also assume territorial responsibility for preventing and combating illegal cross-border activities in securities, futures, and funds. 

However, A CSRC official has noted that not all disputes or losses arising from overseas investments conducted through illegal channels will receive full legal protection under domestic law. The primary goal of this rectification campaign is to ensure that it will not affect the safety of investors’ assets.

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