Regulatory crackdown on cross-border brokers sparks interest in on-chain stock trading

Author: Attorney Liu Honglin

Over the past couple of days, many people who have invested in Hong Kong and U.S. stocks have been sharing the same news.

On May 22, 2026, the China Securities Regulatory Commission announced that it had initiated an investigation into Tiger Securities, Futu Securities, Changqiao Securities, and related domestic and overseas entities for allegedly engaging in illegal securities business activities within China, and issued a preliminary notice of administrative penalties. Please note: this is not yet the final penalty decision; the parties involved still have the right to present statements, defenses, and request a hearing.

On the same day, the CSRC and seven other departments also issued the "Implementation Plan for Comprehensive Governance of Illegal Cross-Border Securities, Futures, and Fund Activities." The focus of this plan is not merely to penalize a single internet brokerage, but to comprehensively address the entire chain of offshore securities, futures, and fund institutions conducting business within China without proper authorization. According to the plan, regulatory actions will cover activities by offshore institutions such as marketing and solicitation within China, account opening, receiving or processing trading instructions, and fund transfers, as well as support provided by domestic entities—including website development and operation, trading software services, and customer support—for such activities. The plan also establishes a two-year intensive governance period, during which existing businesses are permitted only one-way selling and fund outflows.

Many ordinary users previously understood this issue as “Which app should I choose to buy Hong Kong and U.S. stocks?” However, regulators are primarily concerned not with which trading app is installed on a user’s phone, but whether the app’s underlying operations provide securities services within the territory without approval. As long as key functions—such as customer acquisition, trade order processing, system operations, customer support, and fund inflows and outflows—form a de facto operational闭环 within the territory, it is no longer merely an issue of a regular internet product.

Since the news came out, some people have already asked me: if the traditional cross-border brokerage path is becoming increasingly limited, can we trade Hong Kong and U.S. stocks on-chain?

I'm not surprised by this question.

Last year, I visited Singapore and had discussions with several investment friends. One friend previously had little interest in cryptocurrency, but he started paying attention to Web3 last year—not because Bitcoin rose again, or because any blockchain launched a new story, but because of on-chain U.S. stocks. His reasoning was straightforward: if assets like Apple, NVIDIA, Tesla, and S&P ETFs could someday be held, transferred, settled, and even integrated into DeFi portfolios via on-chain accounts, then blockchain would no longer be just an internal asset game within the crypto community—it could become a new global interface for financial assets.

This is an interesting phenomenon.

On-chain U.S. stocks make Web3 easier for traditional investors to understand, as they don’t require believing in a new, unfamiliar asset—instead, they place familiar assets like stocks, ETFs, and index products into the context of wallets, stablecoin settlements, and smart contracts. For many investors, this is far more intuitive than learning about blockchain performance, consensus mechanisms, and ecosystem incentives.

But this matter is not as simple as many imagine. For investors in mainland China, on-chain U.S. stocks are not a "cure" to bypass regulation. If someone merely wants to replace the processes of account opening, depositing funds, trading, and holding positions—previously done through cross-border brokerage apps—with wallets, USDT, and on-chain tokens, the risks may not be any lower.

A more accurate statement is: On-chain U.S. stocks address the question of “how to tokenize traditional assets and how qualified users can gain exposure to U.S. stocks via on-chain methods”; they do not address the issue of “whether residents within the jurisdiction can bypass securities, foreign exchange, and cryptocurrency regulations to purchase U.S. stocks.”

For compliant institutions and technology service providers, this is an infrastructure direction worth serious consideration. For retail investors looking simply for a new opportunity, it’s advisable to pause and stay calm.

Why do on-chain U.S. stocks exist? The traditional securities market is already highly mature, but for many non-U.S. investors, buying U.S. stocks isn’t as simple as opening a webpage and clicking buy. How do you prepare the account opening documents? How do you deposit funds? How do you handle tax filings? Who do you contact if your account is flagged by risk controls? These steps may be familiar to professional institutions, but for ordinary users, each one requires interaction with banks, brokers, and compliance procedures. When the experience isn’t smooth, the market naturally seeks new entry points.

For crypto users, this disparity is even more apparent. They are already accustomed to wallet transfers, on-chain settlements, and 24/7 fund movements. Yet, when they want to invest in stocks or ETFs, they must revert to bank accounts, brokerage accounts, and traditional clearing systems. While there is no technical barrier to connecting on-chain assets with traditional assets, the experience of connecting them remains fragmented.

The appeal of on-chain US stocks lies in their attempt to tokenize economic exposure to US stocks or ETFs. Users see a stock token—a blockchain-based version of a specific US stock or ETF—while behind the scenes, there may be issuers, broker-dealers, custodians, market makers, oracles, smart contracts, and distribution platforms. Products with more comprehensive disclosures and higher compliance standards typically emphasize underlying asset backing, segregated custody, accredited investor restrictions, redemption arrangements, and legal documentation.

You can view it in two layers: on-chain, you see accounts, tokens, and transaction entry points; off-chain, the underlying assets, custody arrangements, legal documentation, user onboarding, and exit pathways are what truly determine the outcome.

On-chain U.S. stock product structure: On-chain access and off-chain rules

Evaluating an on-chain stock product shouldn't rely solely on whether its name includes Apple, NVIDIA, or Tesla. You must look deeper: Has the underlying asset actually been purchased? Who is holding the assets? What does the issuance documentation state? Are users eligible to purchase? And can they later redeem, sell, or assert their rights?

This is also the most commonly misunderstood aspect of on-chain stocks: it does not necessarily mean you directly own a share of a U.S.-listed company.

Currently, the industry generally shows two distinct paths.

One type involves issuers tokenizing underlying stocks or ETFs as on-chain financial instruments. For example, Backed’s xStocks are legally described as on-chain transferable securities in the form of “tracking certificates”—structured products that track the price of underlying stocks or ETFs. It emphasizes that each xStock tracks the price of a publicly traded stock or ETF on a 1:1 basis and is fully collateralized by the corresponding underlying asset. However, it also clearly states that holders do not acquire voting rights or any shareholder rights in the underlying stock. In other words, you receive a financial instrument backed by underlying assets, not direct ownership as a shareholder in the public company.

Another category involves large platforms using stock tokens as an investment gateway for users in specific regions. For example, Robinhood launched U.S. stock and ETF tokens for EU users in 2025, focusing on enabling qualified European users to gain exposure to U.S. equities within the app, with support for dividends and extended trading hours. Similarly, when Ondo Global Markets launched in 2025, it emphasized bringing over 100 U.S. stocks and ETFs on-chain, targeting qualified non-U.S. users. Their commonality is not that “anyone can buy,” but rather that each is striving to place its product within a specific, compliant distribution framework.

The on-chain equities market is also growing. According to CoinGecko’s 2026 RWA Report, the market capitalization of on-chain equities increased from approximately $20.9 million as of June 30, 2025, to about $487 million as of March 31, 2026; the spot trading volume of on-chain equities in the first quarter of 2026 reached approximately $15.1 billion, surpassing the total trading volume of the second half of 2025.

However, this should not be misinterpreted as “on-chain U.S. stocks having replaced traditional brokerages.” The same report also cautions that, even though leading on-chain stocks are now integrated with multiple centralized exchanges, their trading volume remains minimal compared to the actual U.S. stock market. While growth in this area is rapid, it is not yet the mainstream securities market itself.

I prefer to view it as an ongoing infrastructure experiment rather than a mature investment shortcut.

For individual investors, the biggest risk with on-chain U.S. stocks isn’t technical jargon—it’s the illusion created by interfaces that look just like traditional stock trading platforms. Many products display stock tickers, real-time prices, price changes, and buy/sell buttons, leading users to believe they’re trading U.S. stocks through a conventional brokerage. But legally, what you’re purchasing may be a token backed by the underlying stock, a structured product, a synthetic asset, or merely a price exposure recorded on the platform’s internal ledger.

First, examine the rights: Is there a redemption right? How are dividends handled? Is there voting power? What happens to the underlying assets if the issuer goes bankrupt? Who do you contact if the custodian encounters issues? These details are not found in the token’s name—they’re in the legal documents and product structure. If a project only emphasizes that the token “can be traded” and “tracks U.S. stocks” but fails to clearly explain the underlying assets, custody arrangements, or exit mechanisms, investors should proceed with extreme caution.

Second, check identity and geographic restrictions. On-chain U.S. stock products with relatively transparent information on the market clearly state which regions are eligible, which are restricted, and what identity verification or accredited investor checks users must pass. Many products emphasize availability to non-U.S. users, but “non-U.S.” does not mean “anyone worldwide can freely purchase,” nor does it mean “mainland Chinese residents can buy directly through their wallets.” If users bypass platform restrictions using false identities, nominee arrangements, VPNs, overseas phone numbers, or other methods, they may appear to gain access in the short term—but often face two subsequent issues: the platform may freeze, restrict, or delist their account upon detection; and in the event of any dispute, users will struggle to claim full protection based on an inherently non-compliant access path.

The third point is to examine the source of funds. Domestic individuals purchasing foreign currency are required to have a genuine and lawful transaction basis, and the individual foreign exchange application form explicitly states that funds cannot be used for overseas real estate purchases, securities investment, or other capital account items that remain unopened. If an individual was previously unable to legally use their personal foreign exchange quota to buy overseas stocks, switching to a stablecoin first and then purchasing on-chain U.S. stocks does not make the fund usage compliant simply because an additional wallet pathway has been added.

Regulation of virtual currencies in mainland China has been continuously tightened. On February 6, 2026, the People’s Bank of China and seven other departments issued the "Notice on Further Preventing and Handling Risks Related to Virtual Currencies and Other Matters" (PBOC [2026] No. 42). It reiterates that virtual currencies do not have the same legal status as legal tender, and any activities within China involving the exchange of fiat currency for virtual currencies, exchange between virtual currencies, token issuance and financing, or trading of virtual currency-related financial products constitute illegal financial activities that must be strictly prohibited and lawfully abolished. Additionally, overseas entities and individuals are also prohibited from providing virtual currency-related services to domestic parties in any form. The notice also brings tokenization of real-world assets under regulatory oversight, clarifying that activities conducted within China related to such tokenization—including intermediary or information technology services—may expose participants to risks of illegal financial activity unless specifically authorized. In the context of on-chain U.S. stocks, if a domestic user uses a stablecoin to access overseas stock tokens, the risk extends far beyond simply "purchasing an overseas asset"; it may simultaneously involve securities investment, foreign exchange usage, virtual currency trading, anti-money laundering, and cross-border disputes.

In addition to the issues mentioned above, there are many other concerns that investors should pay attention to regarding on-chain U.S. stocks.

First and foremost are price and liquidity. Traditional U.S. stocks operate with opening and closing auctions, market making, regulatory oversight, and clearing systems. While tokenized assets on-chain can be traded 24/7, the underlying stock markets are not open around the clock. During non-trading hours, how is the on-chain price anchored? Who provides liquidity? At what point does price deviation become unacceptable? And during periods of extreme market volatility, can redemption and arbitrage mechanisms function effectively? If these questions are not clearly addressed upfront, users may end up holding not a stable exposure to U.S. stocks, but rather an on-chain trading instrument that merely resembles U.S. stock prices.

Stocks involve numerous back-end events such as dividends, stock splits, consolidations, delistings, tender offers, and tax withholding. Traditional brokers typically handle these tasks on behalf of users. For on-chain U.S. stocks to be properly implemented, they must also address these questions: How are dividends distributed? How are stock splits adjusted? What happens to ownership documentation after delisting? Who provides tax documentation? And do users bear additional reporting obligations? Otherwise, users may appear to have exposure to U.S. stocks, but when corporate actions occur, they discover their rights are ambiguously defined.

There is also dispute resolution. On-chain transfers may appear clear, but the legal relationships are not necessarily so. The issuer may be in one jurisdiction, the custodian in another, the distribution platform in a third, and the user might be located in mainland China. When issues arise, which country’s laws apply? Where should you file a lawsuit? Can you obtain proof of asset ownership? Can you recover the custodied assets? These are matters that a blockchain explorer cannot resolve for you.

On-chain activity is merely the front end; what truly determines security is the entire set of off-chain rules—including underlying assets, custody arrangements, issuance documentation, user access controls, redemption mechanisms, audit disclosures, and dispute resolution. Without these elements, no matter how compelling the narrative of tokenizing stocks may be, it will struggle to attract real buyers.

For entrepreneurs, on-chain U.S. stocks are certainly worth paying attention to, but they should not be viewed as an opportunity arising because traditional brokers have been squeezed by regulation.

The most important takeaway from this cross-border securities crackdown isn't just that Futu, Tiger Brokers, and Longbridge were named—it's the broader issue of illegal cross-border operations. While overseas institutions are certainly regulatory targets, domestic affiliated entities, partners, illegal intermediaries, internet platforms, self-media accounts, account opening guides, experience sharing, marketing and customer acquisition, trading software, customer service, and fund transfer support may also come under regulatory scrutiny.

This is a direct warning to on-chain U.S. stock entrepreneurs: If you promote on-chain U.S. stocks to domestic investors, guide them in opening accounts, teach them how to deposit funds, generate referrals and commissions, provide Chinese customer service, organize community investment advisory groups, assist users with trade instructions, or offer trading software, website operations, customer service, and marketing support to offshore platforms, the nature of the risk does not automatically change just because the entry point has shifted from a brokerage app to a wallet, or the settlement currency has switched from USD to stablecoins.

A more realistic entrepreneurial position is not to create a new channel for retail investors to buy U.S. stocks, but rather to focus on the B-side, infrastructure, and compliance services.

The issuer requires custody of underlying assets and proof of reserves, independent audits and reserve disclosures, user identity verification, AML and sanctions list screening, on-chain address risk scoring, oracles, transaction monitoring, abnormal price alerts, corporate actions processing systems, tax reporting, and user reconciliation tools. The trading platform and wallet also require compliance-enabled distribution capabilities, such as how products are displayed in different regions, how user access is determined, which assets require additional risk disclosures, which operations trigger suspicious transaction monitoring, and which on-chain addresses cannot interact.

These activities may not sound as exciting as "buying U.S. stocks on-chain," but they are closer to a sustainable, long-term business.

If an overseas licensed securities firm, asset management institution, custodian, or fund platform wishes to explore securities tokenization, it may not inherently understand on-chain wallets, smart contracts, security audits, on-chain data, cross-chain bridges, asset proof, or stablecoin settlement. A startup team that provides clear technical modules—without handling user funds, facilitating trade matching, marketing to the domestic public, or making yield promises—will have significantly greater compliance space than directly operating as a C-end trading channel.

Back to the original question: Are on-chain stocks a new solution?

If the so-called remedy is to find a new way for mainland investors to circumvent cross-border securities regulation, foreign exchange regulation, and cryptocurrency regulation, the answer is clear: no. It is not a remedy—it could turn what was originally a securities account issue into a complex problem involving securities, foreign exchange, cryptocurrency, anti-money laundering, and cross-border disputes all at once.

But from another perspective, could on-chain U.S. stocks become a major gateway for global financial assets to be tokenized? I believe they could.

Market demand is real. Global users want to access U.S. assets with lower friction; crypto users want stablecoins to move beyond trading and payments; and traditional financial institutions are seeking more efficient ways to issue, clear, and distribute assets. U.S. stocks and ETFs are already among the most widely accepted assets globally—turning them into on-chain interfaces is easier for retail investors to understand than creating entirely new tokens.

The watershed is not whether something is on-chain, but why it is being put on-chain. If the goal is to bypass identity verification, foreign exchange controls, securities licensing, or investor suitability requirements, this path will not lead far. But if the goal is to make the issuance, custody, transfer, auditing, settlement, and risk management of compliant assets more transparent, automated, and global, then it is infrastructure worth building for the long term.

For retail investors, the most important thing is not to confuse "like stocks" with "being stocks," and not to assume that "on-chain" means "unregulated." For entrepreneurs, the opportunity lies not in helping retail investors bypass channels to buy U.S. stocks, but in providing compliant business services such as legal capital, qualified users, regulated issuance, clear custody, verifiable reserves, restricted distribution, risk disclosures, transaction monitoring, corporate actions handling, and tax compliance.

Market demand does not disappear because of regulatory documents, but demand does not automatically become compliant business.

On-chain U.S. stocks have value, but they are not a new outlet for old problems. What they truly test is whether technological innovation can realign with financial regulation once real-world financial assets enter the blockchain.

If handled properly, it could be a crucial step in bringing financial assets onto the blockchain; if misused as a workaround, it could become the next hotspot for risk.