Strategy Note /
China

China's regulatory overhaul highly likely to put Tiger Brokers in a cage

  • The regulatory crackdown in China is continuing, this time, it's the Internet brokers' turn

  • In Tiger Brokers' Q3 2021 performance report, the company said it achieved "notable accomplishments"

  • In a nutshell, one should be cautious of investing in TIGR and/or using its services

EqualOcean
5 January 2022
Published byEqualOcean

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The online brokerage's rapid expansion is in danger.

UP Fintech Delves Into Wealth Management

The regulatory crackdown in China is continuing, this time, it's the Internet brokers' turn. On October 14, 2021, the Chinese official press channel The People's Daily cast doubt on cross-border Internet brokers, in particular Tiger Brokers (TIGR:NASDAQ) and the underlying information security risks involved in offshore trading, especially given that the Personal Information Protection Law (PIPL) came into effect on November 1, 2021. 

In fact, since the case of the local regulators' intervention with the ride-hailing giant Didi Global, the government has been tightening policies around data control and cyber privacy. 

As the news was released, Tiger Brokers' stock price plummeted 21.19% to close at USD 8.18 on that day, while the overall performance plunged nearly 50% to USD 4.5 per share as of December 30, 2021. The 'tiger' is no longer at the top of the food chain in this overregulated industry.

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Tiger Brokers and its origins

Founded in 2014, UP Fintech Holding Limited is one of China's top online brokerage platforms which enables investors to trade in equities and other financial instruments on various overseas exchanges, no matter whether it is the US, Singapore, Australia or New Zealand. In addition to the basic brokerage services, it offers a wide array of value-added services, including IPO subscription, ESOP management, investor education, community discussion and wealth management.

Wu Tian Hua, founder, director and CEO of TIGR, once expressed that the emergence of Tiger Brokers was to address certain pain points experienced by investors – that is, high commission fees, cumbersome account opening processes and inconvenient means of trading. 

Tiger Brokers even turned these three aspects into its own competitive advantages. Bearing the 'mobile first' strategy in mind, Tiger Brokers launched its proprietary mobile trading platform, Tiger Trade, in August 2015, with the aim of enabling worldwide transactions to be at the fingertips of traders and making trading "...more friendly and approachable," as Wu said.

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A paper tiger?

Perhaps not, at least financially speaking.  

In Tiger Brokers' Q3 2021 performance report, the company said it achieved "notable accomplishments". 

The total revenues achieved 60% growth from the same period last year to USD 60.78 million, though there are some ominous signs of a slowdown, especially when compared with the last quarter. Given the competitive commission fees it charges plus the increase in user base and trading volume, the commissions accounted for over half of revenues in Q3 2021; however, that enlarged pool also led to ever-growing total operating costs and expenses. 

The marketing and branding expenses totaled USD 11.16 million in Q3 only, which was triple of USD 3.7 million in the same period last year. And Tiger Brokers' continuous efforts in internationalization finally got rewarded: according to the earnings report, over 80% of the newly acquired funded accounts in Q3 came from outside China.

From the operating side, the number of registered customers reached 1.767 million, while the number of customers with deposits increased 185.1% year-over-year to 612,000 as of September 30, 2021. The total account balance stood at USD 20.5 billion, despite challenging market conditions...

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