US stocks a phone tap away for Chinese traders via Tiger Brokers

Wu’s Beijing-based Tiger Brokers offers an app-based trading service, including for mainlanders, to trade US equities. It’s gearing up to expand into the rest of Asia after raising 200 million yuan (US$29 million) in a new round of funding in December from investors including Citic GoldStone Fund Management and Huagai Capital.

“US equity trading is a niche market in China,” said Wu, Tiger’s 33-year-old chief executive. “Looking abroad, there is huge unmet demand from Chinese-speaking investors to use a convenient and reliable service to trade US stocks.”

Shanghai’s benchmark Composite Index lost 18.7 per cent in the last year, making it one of the world’s worst-performing major equity markets – only the bourses of Lusaka, Ghana and Nigeria recorded larger losses. That’s spurring many Chinese investors to seek better returns elsewhere, driving them to apps like Tiger Brokers.

The three-year-old company, backed to the tune of 100 million yuan in 2015 from Xiaomi, one of China’s largest home-grown smartphone makers, has seen its annual mainland transactions surge to 120 billion yuan in 2016.

Without complicated paperwork, Chinese-speaking investors can open a US trading account on Tiger Brokers’ app by simply filling out and uploading some personal information online.

The app provides real-time data on individual US stocks, technical indicators and global news, all available in Simplified Chinese and Traditional Chinese scripts in addition to a Chinese-language customer service team that is one phone call away.

Tiger’s launches in Taiwan and Singapore were muted affairs earlier this year, amid a Chinese government clampdown on overseas remittances to dampen the growing interest by local investors to increase their offshore asset values as the yuan continues to depreciate.

In July 2016, it and two other internet firms – Futu Network and Jimu Stock – were picked out by the China Securities Regulatory Commission as “unauthorised platforms” for transacting financial instruments.

Investments made via these platforms, which cooperate with overseas brokers to channel cross-border investments, were in a legal grey zone, analysts said.

The CSRC warned mainland Chinese investors to stay away from new internet platforms and mobile apps geared towards overseas equity trading, citing operating risks in the unauthorised platforms.

“A number of mainland internet companies have emerged recently. They cooperate with overseas brokerage companies, providing channels and services for domestic investors to trade the overseas equity market. These activities lack legal protection,” the regulator said in a statement that appeared under the risk alert section on its website.

China’s securities regulator warns against use of unauthorised apps to trade overseas shares

However, Wu said Chinese traders must abide by the official US$50,000 per annum currency remittance limit, according to law.

Only Chinese-speaking investors domiciled outside China will be able to exceed that amount because they are not regulated by the Chinese authorities. Chinese-speaking investors across the world refer to those who can read Chinese but are non-Chinese citizens.

Users must upload a photo of their identity card to open a Tiger Brokers account, so it’s easy to tell who’s under Chinese law, and who’s not. Tiger Brokers service is not available in Hong Kong.

He emphasises the company aspires to serve Chinese-speaking investors, around the world.

“We don’t foresee the trading of US stocks to become a mainstream investment option in China,” Wu said. “Most of our users are employees from US-listed Chinese companies.

“They trade US stock mostly because they have better understanding of those stocks and they already hold foreign currency from their companies’ overseas IPOs,” he said.

Wu emphasised his product is a global service, for Chinese-speaking investors, wanting to trade US stocks.

“The app allows accounts to be opened easily, they offer real-time stock information, buying and selling stocks on time, at low commission fees,” he said.

Tiger Brokers’ commission fee is as low as one US cent per share with a minimum of US$2.99 per transaction when trading US stocks. Compare that US-based Scottrade, which charges US$7 per transaction, while BOC International charges a minimum of US$25 per transaction.

Wu explains that Tiger Brokers channels all its investment through US broker Interactive Brokers. Under the regulation of US Securities and Exchange Commission, investors’ money is put into a third party settlement bank. No broker can have access to their money.

The company claims all Tiger Brokers users’ accounts are also protected by Securities Investor Protection Corp, the US-based non-profit membership corporation which protects against the loss of cash and securities – such as stocks and bonds – held by a customer at a financially troubled brokerage firm that is a member of the corporation.

The upper limit of the corporation’s protection is US$500,000, including a US$250,000 limit for cash. Apart from this, investors at Tiger Brokers are also covered by a commercial insurance with a limit of US$30 million, including a US$900,000 in cash.

With a brokerage license in New Zealand, Tiger Brokers claims that it can offer its services in the mainland, Taiwan and Singapore under the regulation of SEC. The company said it also held other licenses to expand business in other countries, without elaborating.

Asian markets will be the company’s expansion focus in 2017, but Wu is also eying the highly competitive US market, when the right time comes.

“Most US brokers still put English-speaking investors at the centre of their service. But we tailor our services to Chinese-speaking investors, and we do it with the DNA of a technology company by updating our app every two weeks,” he said. “That is not something a traditional brokerage firm can easily copy.”