Hong Kong SFC raids 2 Chinese brokerages in widening IPO probe

Hong Kong's Securities and Futures Commission raided the local arms of two major Chinese brokerages Wednesday, investigating suspected misconduct tied to share offerings as authorities ramp up policing of the city's surging IPO market.

"The SFC is moving beyond cross-border solicitation to scrutinize the underwriting process itself, which raises the stakes for every broker involved in Hong Kong's listing boom," Kevin Ip, an analyst at Edgen, said.

The searches follow a broader crackdown launched May 22 by the China Securities Regulatory Commission and seven other government agencies, which hit online brokers Futu Holdings Ltd., UP Fintech Holding Ltd. and Longbridge Group with penalties totaling more than 2.26 billion yuan ($331 million) for illegally soliciting mainland clients. The CSRC gave the firms a two-year grace period to wind down those activities, during which customers can only sell existing holdings and withdraw funds.

Hong Kong raised HK$209.9 billion ($26.8 billion) in the first quarter, the most of any exchange globally, according to KPMG. Futu and Tiger have acted as underwriters for more than 80 and 45 listings respectively since the start of 2025, exchange filings show — making them central to the IPO pipeline now under regulatory scrutiny. The SFC also said it discovered "significant deficiencies" after reviewing 12 brokers and will require them to close accounts opened with questionable or forged documents.

The SFC's latest action widens a regulatory dragnet that began in late 2022, when the CSRC banned overseas institutions from opening accounts for mainland investors. Friday's crackdown targeted firms that continued soliciting business in China without an onshore license, with the CSRC saying illegal gains would be forfeited.

Futu said it had high compliance standards, had previously stopped adding accounts for mainland applicants and rejected tens of thousands of applications that did not meet requirements. At the end of the first quarter, mainland investors accounted for 13 percent of its customer base. A Tiger spokesperson said the company "has always placed compliance as a top priority."

IPO Boom Meets Regulatory Reality

Hong Kong's capital markets have been on a tear, reclaiming the top global spot for IPO fundraising in the first quarter. But the surge has drawn increased scrutiny from regulators on both sides of the border. The SFC's review of 12 brokers found "significant deficiencies," and the agency said it will require stricter checks for new accounts and their funding sources.

"The government wants to ensure that any outbound capital flows are under its scrutiny," said Gary Ng, senior economist for Asia Pacific at Natixis.

Shares in Futu and UP Fintech fell more than 30 percent in U.S. premarket trading after the May 22 CSRC announcement, while U.S.-listed shares of Chinese companies popular with retail investors — including PDD Holdings Inc., Alibaba Group Holding Ltd. and JD.com Inc. — fell between 3.5 percent and 6 percent. Hang Seng futures dropped 1.5 percent.

"The penalties appear relatively lenient for now, though we cannot rule out the possibility of larger fines down the road — or even criminal prosecution," said Zhan Kai, a partner at law firm Dacheng in Shanghai.

This article is for informational purposes only and does not constitute investment advice.