Tencent alumnus aims to turn Futu into China’s Charles Schwab, even as it lands in Robinhood’s ‘Nerd vs Wall Street’ battle
Futu’s market value has soared 15-fold since its 2019 New York stock sale to about US$25 billion
Li, who worked at Tencent for eight years before striking out to create his own online stock trading platform, said he wants to build what he calls ‘China’s Charles Schwab’
In late January, when the “Nerds vs Wall Street” battle was at its most intense on the New York Stock Exchange, one of China’s most promising technology entrepreneurs was catching very few winks 13 hours away in Shenzhen.
Li Hua, who also goes by “Leaf”, personally negotiated with his dealers in the United States to unfreeze transactions so that customers of Futu Holdings’ internet-only trading platform in mainland China and Hong Kong could join in the chase for the shares of GameStop, an unprofitable retailer of speciality electronic games in Grapevine, Texas.
The GameStop mania wiped out US$27 billion of value in a boom-to-bust cycle in less than a month. It dragged Futu into the limelight along with the largest no-commission online broker Robinhood, when Li’s customers were barred from buying additional shares in GameStop and AMC Entertainment Holdings. Even though the suspension was eased within 24 hours, the episode drew an uncomfortable comparison with Robinhood, which sells customers’ online orders to high-frequency brokers or market makers like Citadel Securities. Li, founder of Futu, had envisioned creating China’s Charles Schwab when he established the online broker in 2012.
“We are not like [Robinhood] because they sell order flows in exchange for letting customers trade for free,” Li said in an interview with South China Morning Post in Shenzhen. “That’s not a business [model] that we are getting involved in, at least for now.”
Futu Holdings founder and chairman Leaf Li Hua poses for a picture at the company’s head office in Shenzhen on December 9, 2020. Photo: Iris Ouyang
Futu is the biggest in a new crop of stockbrokers in China that exist 100 per cent online, eschewing the type of bricks-and-mortar trading halls and viewing galleries frequented by the nation’s legions of pensioner investors. The number of China’s share-trading accounts ballooned to 178 million in December, according to China Securities Depository and Clearing Corporation, making this the world’s eighth-largest cluster of people behind Nigeria’s population.
“Online stock trading in China topped the world in 2018 with 31 per cent of the market, showing the steadily rising demand of investors using online channels for their transactions,” according to First Shanghai Securities’ analyst Li Jinglin, in a January 22 report. “Compared with traditional brokerages with bricks-and-mortar shops, online brokers that focus on online trading have improved efficiency, relatively lower commission rates and fees after they cut their overheads, and they are better able to win over loyal customers with their cost advantage.”
