US-China Cross-Border Securities Regulation Tightens; Longbridge Leads Compliance Response

Deepening Sino-U.S. Cross-Border Securities Regulatory Coordination: Longbridge Securities Responds to New Rules in Both Jurisdictions—Rising Compliance Costs for Overseas Brokers May Accelerate Restructuring of the U.S.-Listed Chinese Stocks Trading Ecosystem

Recently, the China Securities Regulatory Commission (CSRC) and the Securities and Futures Commission of Hong Kong (SFC) jointly issued multiple regulatory guidelines governing cross-border securities business—marking the formal establishment of a unified, “end-to-end, consistent, and transparent” regulatory framework for overseas securities services targeting mainland Chinese investors. This coordinated action is no isolated event; rather, it represents a critical step in systematically reinforcing the closed-loop oversight of “capital outflow → trade execution → risk transmission,” following the implementation of the Interim Measures for the Administration of Overseas Securities Issuance and Listing by Domestic Enterprises in 2023. Notably, Longbridge Securities—a rapidly rising licensed broker offering Stock Connect (Hong Kong) and U.S. equity trading services—issued its Compliance Upgrade Statement on Implementing the New Cross-Border Securities Business Regulations in Mainland China and Hong Kong on April 22, becoming the first overseas-licensed broker to publicly disclose its specific remediation roadmap. This move not only reflects the clarity and urgency of regulatory signals but also foreshadows a profound restructuring of valuation logic and business models across internet brokers—including Futu, Tiger Brokers, and Snowball—whose operations serve mainland clients.

Core Regulatory Breakthrough: Shifting from “Territorial Oversight” to “Conduct-Based, End-to-End Supervision”

The essence of this regulatory upgrade lies not in simply raising licensing thresholds, but in establishing a conduct-based supervisory paradigm anchored in the investor’s place of residence. Per the Guiding Opinions on Regulating Mainland Residents’ Participation in Overseas Securities Trading via Overseas Institutions, jointly released by the CSRC and the Hong Kong SFC, any overseas broker providing any service—including account opening, trading execution, investment information dissemination, or advisory services—to mainland residents must satisfy three mandatory requirements, regardless of its jurisdiction of incorporation (e.g., Cayman Islands, Singapore, or the U.S.):

1. It must hold official registration with the CSRC as a recognized overseas securities and futures operating institution (i.e., be listed on the CSRC’s “white list”);
2. All marketing materials, risk disclosure statements, and account agreements directed at mainland clients must undergo review by mainland-qualified compliance lawyers and be filed with regulators; and
3. Client fund transfers, trade order routing, and position data reporting must be integrated into the cross-border regulatory information-sharing platform designated by China Securities Depository and Clearing Corporation (ChinaClear) and the Hong Kong Exchanges and Clearing (HKEX), enabling T+0 real-time monitoring.

This means that past operational models—relying on “technical isolation” (e.g., IP restrictions or unilateral disclaimers in user agreements) or “jurisdictional ambiguity” (e.g., stipulating Cayman law as governing law)—have now become entirely nonviable.

Structural Surge in Compliance Costs: Existential Pressure Mounts for Smaller Brokers

According to internal estimates by Longbridge Securities, full compliance transformation will require over RMB 30 million in investment, covering three categories of mandatory expenditures:

1. Expansion of mainland compliance and risk management teams (minimum 15 personnel—including certified Chief Compliance Officer, AML specialist, and Data Security Officer), entailing annual personnel costs of approximately RMB 8 million;
2. Technology development and system certification fees for connecting to the regulatory information platform—exceeding RMB 12 million—including API interface development, encrypted transmission module deployment, stress testing, and annual audits; and
3. Recurring expenses, including legal and audit fees, cross-border fund custody channel fees, and dedicated investor education budgets—totaling roughly RMB 6 million annually.

For institutions lacking CSRC-recognized registration, the cost burden is even more severe: opting to “catch up” entails additional legal risks associated with overseas entity restructuring, VIE architecture adjustments, and retroactive compliance reviews of historical business activities; choosing to “exit” instead triggers sunk costs—including client migration, brand-value erosion, and employee severance. Market consensus anticipates that within the next 12 months, 3–5 small-to-midsize internet brokers will materially scale back their mainland operations due to unsustainable compliance pressures, potentially pushing industry concentration above 70%.

Three-Pronged Restructuring of the U.S.-Listed Chinese Stocks Trading Ecosystem

Tightening regulation is accelerating the reshaping of liquidity dynamics for U.S.-listed Chinese stocks.

• First-level restructuring: Trading channels
  As unlicensed channels lose their ability to attract users, increasing volumes of mainland capital are expected to flow through regulated conduits—including Stock Connect (including the 22 newly added U.S.-listed Chinese stocks under the “Stock Connect Expansion”), QDII funds, and bank-distributed products—further consolidating pricing power among licensed institutions.

• Second-level restructuring: Choice of listing venue
  The new rules strengthen tripartite accountability linking issuers, investors, and intermediaries—pressuring U.S.-listed Chinese firms yet to pursue dual primary listings in Hong Kong (e.g., Pinduoduo, NIO) to accelerate such efforts. Only dual primary listings enable seamless access to Stock Connect, reduce transaction friction for mainland investors, and mitigate liquidity discounts arising from ongoing disputes over U.S. audit working papers.

• Third-level restructuring: Localization capability
  Longbridge’s announcement of establishing a Shenzhen Compliance & Innovation Center—collaborating with the Shenzhen Stock Exchange to develop ESG rating models and Chinese-language financial statement analysis tools for U.S.-listed Chinese stocks—signals a strategic pivot by leading players from mere “conduits” toward “localized service providers.” This may compel peers like Futu and Tiger Brokers to reevaluate their historically dominant “low-commission + high-leverage” competitive model—and shift focus toward high-value-added services such as in-depth research, asset allocation, and risk management.

Regulatory Resilience Amid Geopolitical Uncertainty: When Financial Rules Transcend Political Narratives

Notably, this round of regulatory coordination coincides closely with the protracted U.S.–Iran negotiations. Although former President Trump repeatedly emphasized a “50–50 chance” of reaching an agreement, his signal about “opening the Strait of Hormuz” was essentially an attempt to leverage energy corridor security to extract concessions on Iran’s nuclear program. Such geopolitical uncertainty underscores a fundamental shift in China’s financial regulatory philosophy: moving away from passive responses to external shocks, toward proactively building a “system-based openness” firewall. The “zero-tolerance for hidden hazards” mindset exemplified by the intensive safety inspections of coal mines in Changzhi, Shanxi Province, finds direct parallel in cross-border securities regulation: just as coal mines must halt production if gas extraction fails to meet safety standards, brokers may not operate unless their trading systems are fully integrated into the regulatory platform; just as surveillance data must never be deleted, trade orders and position data must be uploaded in real time and in immutable form. This paradigm—transplanting occupational safety logic into financial infrastructure governance—is forging a more resilient regulatory culture.

Regulation has never been antithetical to development—it is, rather, the calibrator of high-quality growth. When Longbridge’s compliance statement is viewed alongside Trump’s Middle East tweets and Changzhi’s mine-safety bulletins, what emerges is not merely a set of new rules, but the maturation of a governance philosophy: one that refuses to compromise core principles amid uncertainty, and does not delay reform due to short-term pain. Though the restructuring of the U.S.-listed Chinese stocks trading ecosystem may entail transitional discomfort, the resulting gains—enhanced transparency, optimized risk pricing, and renewed emphasis on service value—will ultimately fortify the global competitiveness of China’s capital markets with deeper, more enduring foundations.