China launched an unprecedented campaign against illegal cross-border trading to stem capital outflows, threatening severe penalties against brokers and ordering non-compliant accounts to be liquidated within two years, sparking a brutal selloff in three popular brokerages.

AsBloomberg reports, the pushback came after the onshore markets closed Friday when eight regulators issued a joint statement vowing a campaign against these trades, sending US-listed Chinese stocks tumbling.

The securities regulator said it planned topenalize brokerages Futu Holdings, Tiger Brokers and Long Bridge Securities for operating on the mainland without a license, and would confiscate all “illegal gains” from their domestic and overseas entities.Hong Kong’s markets regulator also announced measures on accounts for mainland Chinese investors.

Futu said regulators proposed about $271 million in fines, while Tiger Brokers owner Up Fintech Holding Ltd. said it was subject to a combined 411 million yuan ($60 million) in fines and confiscated income.

“Tiger has noted the relevant notice and will strictly comply with regulatory requirements and actively cooperate with the relevant process,” UP Fintech’s brokerage unit said in a statement, adding that all business operations remain normal. Futu also said it will co-operate with regulators and that business outside mainland China remains normal. China clients represent about 13% of total funded accounts, the firm said in a statement.

The penalty on Futu likely refers to revenue from mainland clients before 2022, Morgan Stanley said in a research note. That’s because Futu has largely stopped adding new mainland clients since then, and the requirement at that time was to ask brokers to continue serving existing clients, according to analyst Chiyao Huang. Separately, JPMorgan Chase & Co. cut Futu to neutral, with a price target of $87.

The impact on the brokers’ shares was immediate: Up Fintech saw its ADRS sink 25% on Friday, while the US-listed shares of Futu tumbled 27%. The declines spread to other Chinese stocks, as the Nasdaq Golden Dragon China Index fell 1.9%

The joint plan, issued on Friday by the China Securities Regulatory Commission, the People’s Bank of China, the Ministry of Public Security and five other government bodies,aims to dismantle unauthorized offshore investment services that target mainland investors.

Officials said the measures are designed to clean up the capital market and steer investors toward regulated channels for overseas investment.An estimated $1.04 trillion of so-called hot money flowed out of the country in 2025,according to Bloomberg calculations - the biggest annual outflow since data began in 2006.

The moves amount to China’s most aggressive attempt yet to clamp down on its citizens finding ways to trade overseas markets, a long-running practice that is officially off-limits for a nation that imposes strict capital controls to defend its currency.

Source: ZeroHedge News