SEC Investigates Insider Trading Ahead of China Brokerage Crackdown
N.R. Finch
The SEC is investigating options trades placed before China's crackdown on cross-border brokerages — the traders allegedly profited around $100 million. Market maker Susquehanna has sued 100 anonymous defendants, claiming losses exceeding $70 million.
What exactly happened?
Chinese authorities cracked down on cross-border brokerages for offering unlicensed offshore trading to mainland residents.
A group of traders allegedly knew about the crackdown before it went public and bought options in advance.
This means → if confirmed, someone exploited the timing gap of a regulatory action, using options leverage to amplify gains — netting roughly $100 million.
Why is Susquehanna suing?
Susquehanna International Group — a major options market maker — sat on the other side of these trades. It sold the options; when the buyers won, Susquehanna lost.
The firm claims losses exceeding $70 million and has sued 100 anonymous defendants.
In plain terms = a market maker's job is to provide liquidity, and under normal conditions the risk is manageable. But when the counterparty is trading on inside information, the market maker becomes "the one getting picked off."
What have the courts and regulators done?
A federal judge approved Susquehanna's request on Monday and froze the defendants' accounts on three platforms.
The three platforms: Interactive Brokers, Futu Holdings (富途控股), and UP Fintech Holdings (老虎证券's parent).
This reflects a double bind — Futu and Tiger Brokers were already under investigation by Chinese authorities for serving mainland clients without proper licenses. Now they are entangled in a U.S. insider-trading probe as well, squeezed from both sides.
What comes next?
Two key questions remain: ① Will the SEC ultimately confirm insider trading? ② Can investigators identify the traders behind the frozen accounts?
Interactive Brokers said it is cooperating; its shares edged up 0.6% in early Thursday trading, while Futu and UP Fintech each fell 0.7%.
This means → the market is rewarding Interactive Brokers' cooperative stance for now, but is pricing in higher regulatory risk for Futu and Tiger Brokers.
Content is for reference only, not financial advice.