How to usher in the dawn of the other shore?
Author: Hao Keke
Editor: Liu Fei
Wind: Zhang Qian
Source: Rhodium Finance - Rhodium Finance Research Institute
The implementation of the Personal Information Protection Law is imminent, how big is the impact?
Look at Tiger Securities, Futu Holdings, or have a deeper understanding.
01
Suddenly, he was named
LAOCAI
On October 14, People's Daily issued the "Personal Information Protection Law is About to Take Effect, Where Do Cross-border Internet Brokers Go?" " article. It points directly to the two major concerns of Tiger Securities and Futu Holdings' exhibition model: information collection security issues and information destinations.
The article pointed out that during the account opening test of the two, it is necessary to provide information such as the highest education, company name, professional position, business nature, and annual income. Referring to the Personal Information Protection Act, is the above collection secure and where does the collected information go?
Hao Rui, an industry analyst, said that the export of citizens' personal information has always been the focus of supervision. Overseas securities business institutions that carry out marketing, account opening and other activities for domestic investors in overseas securities trading services do not conform to the spirit of the relevant provisions of China's Securities Law and the Regulations on the Supervision and Administration of Securities Companies that no unit or individual may engage in securities business without permission and approval.
As early as 2016, the CSRC issued investment risk tips, naming "Tiger Securities" and "Building Block Stocks". It made it clear that at present, except for qualified domestic institutional investors (QDII) and the "Shanghai-Hong Kong Stock Connect" mechanism, no domestic and foreign institutions have been approved to provide "cross-border stock trading" services.
In July 2019, the Special Governance Working Group for the Illegal Collection and Use of Personal Information by APP was notified, and the assessment found that there were problems in the collection and use of personal information by APP such as Tiger Securities and Futu Niuniu, and that effective contact information was not disclosed, and was required to rectify.
According to the unaudited financial report of Futu Holdings in the second quarter of 2021, the number of customers has increased rapidly, and the proportion of new customers abroad has increased. At the end of the reporting period, the number of registered users worldwide exceeded 15 million, an increase of 67% year-on-year; the number of account opening customers was 2.32 million, an increase of 142.5% year-on-year; and the number of paid customers exceeded 1 million, an increase of 230% year-on-year.
Tiger Brokers' latest second quarterly report also shows that as of Q2, the number of customers who opened accounts in Q2 of 21 was 1.649 million, and the quarterly increase was 249,000. The number of deposited customers was 529,000, an increase of 153,000 in the quarter, and a new quarterly net increase.
On July 10, 2021, the Measures for Network Security Review (Draft Amendment for Solicitation of Comments) pointed out that "operators with more than 1 million users' personal information who go public abroad must apply for network security review to the Cyber Security Review Office".
The Personal Information Protection Law also proposes that personal information processors who provide personal information abroad due to business and other needs should meet one of the following conditions: pass a security assessment organized by the state network information department in accordance with the provisions of article 40 of this law; conduct personal information protection certification by professional institutions in accordance with the provisions of the state network information department; conclude a contract with the overseas recipient in accordance with the standard contract formulated by the state network information department to stipulate the rights and obligations of both parties; and other conditions stipulated by laws, administrative regulations, or other conditions stipulated by the state internet information department.
Liu Anbang, a lawyer at Beijing Deheng Law Firm, said that this puts forward higher compliance requirements for the cross-border transmission and use of investor data. Cross-border Internet brokers such as Futu and Tiger have risks in the security, legalization and compliance of user information.
From this point of view, the people's network name seems to be sudden, but in fact, it has already foreshadowed.
On October 14, Futu Securities fell 12.41%, and its market value evaporated by $1.5 billion; Tiger Securities fell 21.19%, shrinking its market value by $330 million.
Stretching the dimension, the two have experienced several downward adjustments this year. As of October 21, Futu Holdings closed at $72.44, down 60 percent from its high of $204.25 in February at the beginning of the year, and Tiger Securities' share price was $8.89, down more than 70 percent from its February high of $38.5.
In the face of the above questions, Futu Holdings and Tiger Securities responded that they will always adhere to the bottom line of compliance and firmly embrace supervision.
Futu Securities said that it has completed all rectification work in accordance with regulatory requirements on August 2, 2019. Regarding the Personal Information Protection Law, relevant professionals have been organized to learn and understand for the first time, and relevant teams have been arranged to conduct self-examination.
Tiger Brokers also said that it had completed all the work as required in August 2019. For the Personal Information Protection Law, several rounds of study, training and assessment have been organized within the Group, and professional lawyers and external experts have been hired to provide corresponding guidance.
On October 15, the Securities Times learned from people close to the regulatory authorities that in accordance with the requirements that all financial activities should be fully included in the supervision, the CSRC and other regulatory departments are focusing on improving the relevant regulatory rules, and will regulate such activities in accordance with the law, strengthen regulatory law enforcement, and comprehensively protect the legitimate rights and interests of investors.
Industry analyst Li Chen said that both the market and the regulatory level are very concerned about information security and domestic capital outflow loopholes.
02
High increases and hidden dangers
According to public information, Tiger Brokers was established in 2014, and the founder and CEO is Wu Tianhua. The securities trading app was launched in August 2015 and listed on the NASDAQ in March 2019. At present, it provides securities brokerage, including ordering and execution and other value-added services for stock trading in the United States, Hong Kong stocks, Shanghai and Shenzhen stocks, and also provides fund supermarkets, involving various fund products such as bonds.
The official website disclosed that Tiger Brokers held relevant licenses in the United States, Singapore and Australia, and did not mention the fund sales licenses it held.
In the first quarter of 2021, Tiger Brokers' revenue was US$81.28 million, an increase of 255.5% year-on-year, and Non-GAAP's net profit increased 21 times to US$23.49 million.
Second-quarter revenue was $60.23 million, up 98.7% year-over-year, and Non-GAAP had a net loss of $4.35 million.
For the increase in revenue without increasing profits, from profit to loss, Tiger Securities said that the main reason is to increase the investment in Singapore and other markets to obtain customers. From the perspective of customer return cycle, the investment is reasonable and efficient, and the purpose is to make the user scale larger for future monetization.
At the performance briefing, Wu Tianhua revealed that the cost of customer acquisition for a single user in the second quarter of 2020 was 130 US dollars, and the cost of customer acquisition in the second quarter of this year rose to 160 US dollars, mainly due to the intensification of market competition and general market performance. And expressed confidence in completing the annual deposit customer guidance of 350,000.
Indeed, from the second quarter of its global account opening customers increased by 249,000, the number of deposited customers increased to 529,000 to a new high, Tiger Securities is true. However, this kind of burning money loss for scale, whether it is sustainable, scale derivative risks, etc. are also worth considering.
From the perspective of business line, Tiger Brokers has formed a product matrix with brokerage business as the core, enterprise and institutional services, investors and users, and asset and wealth management.
In the second quarter, Tiger Brokers maintained its leading position in the retail brokerage market, with commission and interest-related income of US$50.02 million, an increase of 80.2% year-on-year; commission income increased by 63.7% year-on-year to US$30.94 million; interest-related income increased by 115.1% year-on-year to US$19.08 million.
The enterprise service business, which is mainly based on investment banks and ESOP, is also a major highlight of performance, with revenue of 10.21 million US dollars, a year-on-year increase of 301.5%. ESOP added 51 new customers in the quarter, an increase of 218.8% year-on-year; a total of 92 signed customers in the first half of the year, which has exceeded the whole of last year.
It is not difficult to find that Tiger Brokers' overseas business is growing rapidly and is in a period of vigorous expansion. The vitality tension is worth affirming, but the hidden dangers of expansion must not be ignored, in addition to the pain of high customer acquisition and loss, the above regulatory risks and compliance hidden dangers cannot be ignored.
Look at the bigger rich road.
Founded in 2012, Futu is a digital fintech company that went public on the NASDAQ in March 2019.
In the second quarter of this year, its revenue and net profit increased sharply year-on-year and decreased sequentially: total revenue was $200 million, up 129% year-on-year, down about 28% from the previous quarter; Non-GAAP net profit was $70.9 million, up 127% year-on-year and more than 50% month-on-month.
Chasing the reasons, after the epidemic in 2020, market liquidity has strengthened, and Futu Holdings has eaten a wave of dividends. However, entering 2021, market adjustment has accelerated. Especially since the second quarter, Many stock prices such as Meituan Dianping, Bubble Mart, Kuaishou, new oriental and so on have been slashed, and even the leading stocks Tencent and Ali have not been spared.
As an Internet brokerage, Futu Holdings also relies on the sky to eat, and the violent turbulence has led to a sharp decline in trading volume and frequency, and the decline in Futu's profits is also reasonable.
It is worth noting that since July 2021, the listing of many Chinese stocks in the United States has been suspended, and the pace of Hong Kong stock listing has slowed down. The follow-up trend of Futu's performance is not optimistic.
On the other hand, Futu Holdings' expenses for the second quarter of 2021 were HK$647 million, an increase of 145% over the same period last year. Among them, R&D expenditure was HK$173 million, an increase of 47.8% year-on-year, sales and marketing expenses were HK$377 million, an increase of 201.9%, and management fees were HK$96.5 million, an increase of 90.7%. Overall operating profit was HK$650 million, compared to HK$1,272 million in the first quarter.
It can be seen that behind the double increase in profits in the second quarter of Futu Holdings, there are also many hidden worries.
Of course, there are also points to circle.
For example, in the investment banking business, as of 2021Q2, Futu has provided IPO distribution and IR services for 186 enterprises, and with the help of strong IPO distribution strength, it has played an important underwriter or distributor in the wave of listing in Hong Kong and returning to Hong Kong this year.
According to public data, only Q2 Futu Holdings' new IPO companies include well-known listed companies such as JD.com, Angelalign, and China Unicom, and there are more than 26 "10 billion new club enterprises". Based on this, its Hong Kong market position continues to consolidate, and its overseas business continues to accelerate. Among the quarterly net increase in the number of asset-owned customers, Hong Kong, Singapore and other overseas customers accounted for nearly 80%.
On September 27, a number of media reported that Futu Holdings has carried out preparations for the second listing in Hong Kong, with the goal of listing by the end of 2021.
At that time, Chen Yu, chief financial officer of Futu Holdings, replied that the company has noticed some recent changes and trends in the capital market, and is also actively conducting research in this area and comprehensively evaluating.
03
Where to go in the era of strong regulation?
It is not difficult to find that the growth momentum of Futu Holdings and Tiger Securities is strong enough.
Since the beginning of this year, Chinese stocks have been hit by frequent bearish blows. Choice data shows that of the 325 U.S. stocks that traded during the year, 216 rose negatively, and 76 fell by more than 50% during the year.
In contrast, Tiger Securities and Futu Securities are already strong. Especially in the first half of the year, both stock prices increased by more than 300%. However, in the second half of the year, in the face of "sudden changes in the wind and clouds", the stock price continued to fluctuate downward, almost erasing the increase in the first half of the year.
The reason for this, in addition to the overall market of Chinese stocks, combing the time node is also not unrelated to the policy side.
In fact, in addition to the export of personal information, the business model of cross-border Internet brokers is also questionable. According to the current policy, individual investors are prohibited from directly engaging in overseas investment, and the annual exchange amount per person is 50,000 US dollars, but it cannot be used for overseas investment.
Therefore, many public opinions believe that the business model of Tiger and Futu is suspected of "gray belt".
In October 2019, Tiger Brokers was short-selled by Geoinvesting, with reports accusing it of illegal money laundering, no Chinese securities brokerage license, commission income at risk, consolidated accounts not protected by SIPC, repeated customer complaints about non-compliance, and interest-free loans to related parties.
Some industry lawyers even bluntly said that cross-border Internet brokers, as the agents of overseas securities companies in China, are suspected of illegally exhibiting business, "The CSRC has never allowed agents to trade in US stocks, and if something goes wrong, it is not protected by Chinese law." ”
Industry analyst Yu Shengmei believes that for cross-border Internet brokers, the regulatory issue of cross-border exhibition industry is always a sword. If the securities business does not have administrative licenses, the personal information law superimposes foreign exchange control becomes stricter, and the operational risks cannot be ignored.
Not a deliberate boast.
In October 2020, Ding Zhijie, director of the Foreign Exchange Research Center of the State Administration of Foreign Exchange, said that he would study the integration of cross-border securities investment account management.
Taking Futu as an example, most of the current major customers are from Chinese mainland and Hong Kong. According to the first quarter report of 2021, the number of registered users of Futu Niu niu and Moomoo platforms totaled 14.2 million, and 75% of the new asset customers in mainland China and Hong Kong. Once the policy fluctuates, what is the impact on it?
Compliance is the premise of all development.
It can be seen from the combing that the policy orientation of information security and capital security has been very clear, and the tightening of supervision is a major trend. With the landing of relevant policies and follow-up of subsequent derivatives, the regulatory fence is bound to become more and more dense and strict. Like walking in gray, how far is the darkest hour.
Go? Can we follow the trend and usher in the dawn of the other shore? See.
This article is original for Rhodium Cai
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