UP Fintech Bolsters Global Expansion with NYSE Membership – Futu Holdings (NASDAQ:FUTU), Interactive Brokers Gr (NASDAQ:IBKR)
Key points to remember:
- UP Fintech’s TradeUP Securities unit has become a member of the New York Stock Exchange, providing clients with direct access to the exchange to enable faster trades at lower costs
- The company has expanded outside of China to reduce its dependence on its home market, where it is subject to a long list of ever-changing regulations.
By Warren Yang
Online brokerage UP Fintech Holding Ltd. TIGR The list of global references grows as it continues to expand outside of China where it was founded.
On Monday, the company, best known for its Tiger Brokers service, said its unit TradeUP Securities, a US broker acquired by UP Fintech in 2019, became a member of the New York Stock Exchange (NYSE). This means that UP Fintech can now offer its clients direct access to the NYSE, allowing them to execute trades there faster and cheaper by eliminating the need to use third-party intermediaries who charge transaction fees.
UP Fintech is now technically a member of three different NYSE entities, bringing its number of global licenses and qualifications to 59 from 56. Formerly based in Beijing, the company is racking up such trophies as it seeks to reduce its exposure to China after Beijing regulators. said last year that UP Fintech, along with its rival Futu Holdings Ltd. FUTUREwere may be operating illegally in the country by providing financial services without the necessary licenses.
Indeed, UP Fintech is subject to a complex web of ever-changing regulations in China, where regulators are vastly tightening oversight of a new generation of private financial services providers that have sprung up over the past 10 years.
For starters, there are regulations for securities and futures brokerages. As early as 2016, one of the company’s entities in China was ordered by the China Securities Regulatory Commission (CSRC) to stop working with unauthorized foreign companies that provide securities services in the country. But instead of severing ties with these partners, UP Fintech reacted by removing its own links to account opening functions on the website and app developed by the Chinese entity that originally ordered the CSRC.
UP Fintech has also removed the Chinese words for titles and shares from the name of the partner app. He then informed the CSRC of the changes, but still said in his latest annual report that he could not assure investors that all was well with regulators.
UP Fintech is now positioning itself as an online information provider for investors in China, rather than a provider of actual financial services like securities trading, all of which are delivered on its platform using third-party partners. But even so, these investor information services are also subject to a wide range of regulations, such as those relating to telecommunications, online publishing, cybersecurity and privacy protection.
All of this goes to show how difficult life can be for companies like UP Fintech in China. To mitigate this regulatory risk, UP Fintech sought to develop business with foreign equity buyers and obtained brokerage licenses in the United States, Hong Kong, Singapore, New Zealand and Australia.
Singapore has been key for UP Fintech among these markets. The company is now incorporated in the Asian financial hub and received clearance to trade on the city-state stock exchange last year. In contrast, Futu focused on Hong Kong, trying to take advantage of a shift among investors in the highly autonomous Chinese city to larger, safer brokerages from many smaller ones.
Success in Singapore
Both international expansion strategies seem to be working. In the three months to June, UP Fintech posted a non-GAAP net profit of $3.5 million, compared to a loss of $4.4 million a year earlier, as its customer base outside of China continued to grow, according to the company’s latest quarterly results release. earlier this month. Futu, which was already generating bigger profits than UP Fintech, did even better during the period, increasing its non-GAAP net profit by 25% to around $88 million.
For both companies, it is essential to strengthen their pool of customers with deposits in their accounts for trading, rather than those who just open accounts and leave them empty, because the first type generates income. At UP Fintech, the number of such customers grew by more than 38% over the last reporting period, far outpacing the growth of its overall customer base. More than 70% of UP Fintech accounts containing money are now held by customers outside of China.
UP Fintech boasts that its market share in Singapore has continued to grow. Additionally, it retained 99% of its clients with assets in Lion City in the second quarter, with net asset inflows from these clients exceeding $9,000 per client on average during the period, compared to $8,000. in the previous quarter. Additionally, the number of trading lots on the company’s Singapore platform grew 110% year-on-year in the second quarter, while options trading volume nearly doubled.
Having established itself in Singapore, the company is looking to replicate that success in Australia after rolling out service to the market in the first quarter. At this time, UP Fintech is “still testing the waters and doing everything possible to localize our products and services,” the brokerage said in its second quarter earnings announcement.
The US may be out of reach for UP Fintech at the moment, given intense competition from other popular discount brokers like Charles Schwab SCHW and Interactive brokers IBKR. But its new ability to connect its users directly to the NYSE may still give UP Fintech an advantage, especially in terms of costs. The firm can save the fees it pays to other brokers to execute trades and pass them on to its own clients in the form of more attractive prices.
Joining the NYSE will also allow UP Fintech to reduce its heavy reliance on Interactive Brokers, which executed and cleared well over half of the company’s net revenue last year. That share was already down sharply from more than 70% in previous years, likely because UP Fintech began self-clearing some US stock trades in the third quarter of 2019 after its acquisition of TradeUP Securities. With joining the NYSE, UP Fintech’s reliance on Interactive Brokers will likely decrease even further.
Shares of UP Fintech fell on Tuesday after it announced it would join the NYSE. But the decline shouldn’t be over-interpreted, as expectations for the Fed’s latest major interest rate hike to be announced later in the week weighed on the broader market for much of the past week.
Shares of UP Fintech are still trading at a price-to-earnings (P/E) ratio of over 74, well above 20 for Futu. The huge difference may be largely due to the former’s relatively weak earnings, but UP Fintech’s high ratio shows that investors are giving it a vote of confidence as it continues to successfully expand its business outside of China.