Nasdaq-listed Futu Holdings is on track to launch its Singapore operations by April and is simultaneously eyeing expansion in the US next year as part of its global plans, according to the founder and chairman of the online brokerage platform.
“Singapore is one of the major financial centres in the world, while it can also serve as a bridge to Southeast Asia,” said Leaf Li Hua, in an exclusive interview at the firm’s headquarters in Shenzhen.
The Tencent Holdings-backed trading platform has made steady progress towards launching its operations in the Lion City after receiving a licence from the Monetary Authority of Singapore in October. Futu has hired a team of more than 10 people, rented an office, and has been diligently conducting research and development to fine-tune its product. Over 150 staff from its Shenzhen and Hong Kong offices will assist with the Singapore operations remotely.
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Li said the big potential of the US market was a part of the motivation behind Futu’s decision to start its expansion in America, where “we are aiming to gain at least a few million users”.
“We completely relied on our third-party service provider Interactive Brokers for our US operations before we started our own company and received the US licence,” Li said.
In the US, Futu is building its own clearing channel, which will be launched next year. This will allow the firm to provide clearing, settlement and asset custody services to users independently.
“Since the beginning we have aimed to become the Chinese version of Charles Schwab, but version 2.0,” said Li, referring to the US financial conglomerate that has grown from humble beginnings as a stockbroker to managing US$6.4 trillion of client assets.
One of mainland China’s earliest online brokers, Futu has grown rapidly since its founding in 2012, allowing Chinese investors to trade stocks offshore in places like Hong Kong and the US. Futu now has more than 1,100 employees and occupies three floors next to Tencent Holdings’ headquarters where Li worked for eight years from 2000 as the 18th founding employee.
Futu’s market value too has risen, reaching US$5.5 billion as of December 23, since its initial public offering in March 2019. It was boosted by a surge in online trading during the coronavirus pandemic, as retail investors stuck at home during extensive lockdowns worldwide actively traded equities.
Most online brokerages like Futu charge zero commission, disrupting the traditional brokerage business model. Competition is heating up as they look to differentiate themselves with value-added services. New entrants from the mainland like Sina-owned Valuable Capital, Xiaomi-backed Tiger Brokers and Ant Group-backed Snowball Securities have further crowded the marketplace.
The online user base of equities trading apps has ballooned in recent years in China, recording double-digit percentage growth from 2016 to 2019, according to consultancy iiMedia Research. It is forecast to grow at 16.2 per cent to 129 million users in 2020, it said.
Futu has been able to capture the rising number of retail investors in the world’s second-largest economy. The company said its clients, up 52.2 per cent year on year at 10.4 million by the end of September, were mostly in their 30s, highly educated and well paid. Futu is also looking to cash in on IPO financing as an increasing number of US-listed Chinese firms turn to Hong Kong for secondary listings because of sanctions threats and heightened scrutiny by Washington as a result of escalating tensions.
“We believe that the increase in US-listed Chinese companies seeking secondary listings in Hong Kong and the surge of high-profile Hong Kong IPOs will act as major tailwinds to our growth,” Li said in August after the company posted a fourfold year-on-year increase in first-quarter profit.
Looking ahead, Li said that the plan was to increase spending on marketing and advertising to grow the user base, as more than 50 per cent of new clients during the pandemic came via referrals from existing clients. There will be a particular emphasis on Hong Kong, said Li, without elaborating.
Already the company’s costs have risen significantly this year, surging 160.9 per cent to HK$182.1 million (US$23.5 million) in the third quarter from the same period a year ago.
“The sheer number is relatively big, but the cost per client is not high,” said Li.
The marketing push will pay dividends, he added.
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