China’s CSRC monitors US insider trading probe tied to Futu, Tiger Brokers

China's securities watchdog said Monday it was monitoring developments in a US lawsuit alleging that unidentified traders reaped more than $100 million in profits from options bets placed ahead of Beijing's May crackdown on cross-border brokerages Futu Holdings ↗ 1.45% and Up Fintech ↗ 1.51%, the parent of Tiger Brokers. The China Securities Regulatory Commission stopped short of announcing its own investigation into the alleged insider trading, even as both the SEC and the US Department of Justice examine the trades.finance.yahoo+3

The Susquehanna Lawsuit

Susquehanna International Group, one of the world's largest electronic trading firms, filed suit on June 29 in Manhattan federal court against 100 unnamed defendants, alleging it lost more than $70 million as the counterparty on put options purchased in the two weeks before the CSRC's May 22 announcement. The traders collectively spent roughly $12 million on options tied to the stocks of Futu and Up Fintech, yielding returns of more than 900 percent, according to the complaint. Susquehanna said the trades were executed through accounts at Interactive Brokers ↗ 2.01% and on the platforms of Futu and Up Fintech, and alleged that the traders were likely tipped off by Chinese regulatory staff or employees of the brokerages themselves.straitstimes+3

A federal judge granted Susquehanna's request to freeze the brokerage accounts in question and authorized subpoenas to identify the account holders, according to Bloomberg. Citadel Securities, another major market maker, asked a court late last week for permission to join the lawsuit, saying it lost about $28 million on the same trades.bloomberg+2

Broader Regulatory Fallout

The May 22 crackdown saw the CSRC, acting with seven other government agencies, announce plans to eliminate unauthorized cross-border securities operations within two years. The regulator proposed confiscating illicit gains and imposing penalties totaling approximately 1.85 billion yuan — about $255 million — on Futu alone, with additional fines for its CEO. Tiger Brokers and Longbridge Securities also face penalties.leaprate+3

The SEC is examining the trades described in Susquehanna's complaint, according to a person familiar with the matter cited by Bloomberg, though the scope and stage of its review remain unclear. The Justice Department has also opened a probe. The CSRC's decision to monitor rather than launch a parallel investigation leaves open the question of whether Beijing will pursue the alleged leakers within its own ranks.finance.yahoo+3