Futu Holdings (NASDAQ:FUTU) stock was down nearly 10% this morning on reports that new regulations from the Chinese government will limit its business.
While Futu is disputing the report, an article from Reuters was enough to initially send the stock down today. This comes as FUTU stock has been under pressure lately on persistent reports that Chinese regulators are going to crackdown on online brokerages.
Over the past six months, Futu shares have fallen 18% to $36.07.
What Happened With FUTU Stock
Futu Holdings is calling the media reports “fake” and says it has not received any communication from regulators that will impact its business. However, stories continue to circulate that Chinese officials are planning to ban online brokerages such as Futu Holdings from offering offshore trading services to mainland Chinese clients.
The reported ban is the most recent development in a broad crackdown by Chinese regulators on the country’s private sector and publicly traded companies. As companies like Didi (NYSE:DIDI) have highlighted, data security is one of the top concerns.
Why It Matters
Futu Holdings is one of the biggest players in the online brokerage sector. This means that a ban could impact millions of retail investors in mainland China. Specifically, it could limit the access these investors have to U.S. and Hong Kong markets.
Futu Holdings said that it has been communicating with Chinese authorities. However, contrary to the Reuters report, Futu says it has not received any formal orders. FUTU stock has fallen 40% in the last month on escalating anticipation that China’s government is going to move against online brokerages as it has against other sectors ranging from real estate to e-commerce.
What’s Next for Futu Holdings
FUTU stock appears to be recovering from this morning’s plunge, but lingering uncertainty will likely impact the share price in the near term. Until the government or regulators clarify the situation, investors should approach Futu Holdings with caution.
On the date of publication, Joel Baglole did not have (either directly or indirectly) any positions in the securities mentioned in this article. The opinions expressed in this article are those of the writer, subject to the InvestorPlace.com Publishing Guidelines.
