Founders of China’s Robinhood Apps Make Billions on Retail Mania

(Bloomberg) -- The retail frenzy that hit markets has been a boon for trading apps. No matter if investors are buying or selling, online brokers are benefiting by taking a cut of each transaction.

That's making their founders rich, fast -- especially the Chinese firms that have popped up in recent years.

Futu Holdings Ltd.'s Leaf Li Hua is now worth $5.3 billion, up $3 billion this year alone, according to the Bloomberg Billionaires Index, as shares of the Shenzhen-based company have more than doubled. With a fortune estimated at $11.9 billion, Qi Shi of East Money Information Co. has become wealthier than Charles Schwab, the founder of the namesake discount brokerage.

Chinese peer Up Fintech Holding Ltd. has surged 136% in 2021, while privately owned Webull Financial, created by Alibaba Group Holding Ltd. alumnus Wang Anquan, recorded a 16-fold increase in new trading accounts in a single day last week. That's partly because the U.S. favorite, Robinhood Markets Inc., enacted trading limits in popular but volatile securities like GameStop Corp., pushing users to look for alternatives.

‘Hot Market'

Online brokers -- especially Robinhood -- have been enablers of the throng of retail traders. Stuck at home amid coronavirus lockdowns, millions of people around the world have tried their hand at buying and selling securities in the past year. They're now challenging Wall Street bankers en masse, making their brokerages busier than ever.

“Because of the hot market, the number of newly added users is also good,” said Larry Hung, an investment director at Centaline Asset Management in Hong Kong. “The increasing trading volume in the market will help the trading commission.”

The latest craze in the U.S. started as retail investors ganged up on social media to drive surges in shares of stocks including GameStop and AMC Entertainment Holdings Inc. Robinhood soon had to limit purchases on some of the equities as clearinghouse deposit requirements increased, enraging customers and politicians alike and putting into question its plans for an initial public offering this year. The online broker had to draw on bank credit lines and raise $3.4 billion from existing investors.

Futu, Up Fintech and Webull all briefly restricted trading in some volatile shares, as well.

Also read: GameStop Frenzy Reaches Biden and Powell as Hedge Funds Squeezed

In Asia, retail traders have always been a driving force in China's stocks, and the trend has only accelerated amid Covid-19 and a hot market for new share sales. In the latest example, the listing of Kuaishou Technology -- the rival of TikTok's parent ByteDance Ltd. -- drew record retail subscription last week, IFR reported.

That's been a big push for the region's trading apps, which have attracted millions of customers in recent months. Futu's users jumped more than 50% in the third quarter to 10.4 million, and Up Fintech -- also known as Tiger Brokers -- attracted a record number of new clients, with customer assets more than doubling in the period.

East Money doesn't disclose its numbers and declined to comment. A Futu representative also declined to comment, while an Up Fintech spokesman said lower commission rates and day-trading thresholds at online brokers are making it easier for retail investors to participate.

Since listing in the U.S. in March 2019, Futu shares have rallied almost ninefold, while Up Fintech has more than doubled; East Money, which went public in Shanghai in 2010 and has surged 4,000% since, has become bigger than Credit Suisse Group AG with a $49 billion market value.

Webull Valuation

Futu's Li, who was Tencent's 18th founding employee before striking out on his own, holds 40% of the company, while Qi of East Money, a former stock commentator who goes by his pen name, owns 21% of the firm, with some of his family members controlling another 5% combined. Wu Tianhua's roughly 20% stake in Up Fintech is now worth almost $500 million.

While Futu and Up Fintech allow the trading of U.S. securities and East Money offers information about them, the majority of their clients are from China. Webull, on the other hand, is one of the fastest-growing retail-trading platforms in the U.S., and its app became the second-most popular among free ones on the iPhone amid the Robinhood restrictions last week. The success is poised to boost Webull's valuation, which its chief executive officer has said would surpass $1 billion after a new funding round.

Also read: Robinhood Loses Thousands of Traders to a China-Owned Rival

Wang, who founded Webull's parent company in 2016 after working at Alibaba and running the finance unit of Chinese tech giant Xiaomi Corp., has a stake of about 35% in the firm. A representative for the broker declined to comment.

Retail trading is here to stay, and the apps that have emerged are poised to draw even more customers. In Hong Kong, a particularly competitive market where large banks have traditionally dominated, smaller players like Futu have gained ground and will keep thriving this year with the continued popularity of IPOs, Bocom International Holdings Co. analyst Jingyi Zhang wrote in a note last week.

“The hot IPO subscriptions will definitely help a lot of their businesses as the margin financing income is huge,” Centaline's Hung said. “The online brokers are more tech-driven. They could better suit users' needs in the new era.”

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