Futu sets up SE-Asia HQ in Singapore as springboard into the region

Singapore

NASDAQ-LISTED Futu Holdings has set up its South-east Asia headquarters in Singapore, where the tech-oriented online broker will soon officially launch its services and use the city-state as a springboard into the region, founder, chairman and chief executive officer Leaf Hua Li says.

The Tencent Holdings-backed firm is also in the process of applying for a virtual banking licence in Hong Kong. If successful, it will join the US$15 billion ecosystem that includes Ant SME Services (Hong Kong), operated by Ant Financial, an affiliate of giant Alibaba Group Holdings; Ping An OneConnect, an entity of Ping An Insurance Group; and Insight Fintech HK, a joint venture of AMTD Group and Xiaomi Corp.

Futu, which raised US$90 million from its initial public offer (IPO) on Wall Street in 2019, operates an application for trading in stocks, warrants, options and exchange-traded funds (ETFs).

The app, called moomoo, allows investors to trade in Hong Kong, mainland China, New York and now, Singapore. It also offers enterprise services, among which are pre-IPO solutions and employee stock ownership plan (ESOP) management services. At the end of its fiscal third quarter, it has about 420,000 paying clients.

The group had a soft launch in January and its official launch in Singapore is set for March 8.

"The Singapore market with over one million retail investors is a huge market for us. Singapore is one of our most important strategic focuses for this year because our products are quite different from other products in the Singapore market," Mr Li told The Business Times.

Rivals generally lack user-friendly platforms with low commissions that give access to the US, Hong Kong and Singapore markets.

According to its Singapore website, commission fees for US stocks are at US$0.0049 per share, with a minimum of US$0.99 per order. There is also a platform fee of US$0.005 per share.

For Hong Kong trades, the fee is at 0.03 per cent of the investment amount or HK$3 (51.5 Singapore cents) which ever is higher. There is also a fixed platform charge of HK$15 per order.

Charges for Singapore users will be kept consistent with other markets. For now, Futu has an early bird promotion: a welcome bundle worth S$180 to new Singapore customers. This includes free level 2 market data for the US market, one-year free commission trading in the US and HK markets and one free Apple Share (AAPL). To enjoy this, users need to open an account with Futu and deposit US$2,000 in their account before March 8.

After that, Singapore trades will be charged a commission of 0.03 per cent of transaction amount, subject to a minimum of S$1.50, plus a platform fee of 0.03 per cent. This works out to 0.06 per cent charge. In comparison, many traditional brokers here charge a minimum of S$10-25 per stock transaction.

Having established its US presence since 2019, Futu not only plans to expedite its foray there, but it has been scaling up its operations in Singapore since it received a licence from the Monetary Authority of Singapore (MAS) in October.

It has about 10 people here, most of whom are involved in finance and marketing, while the bulk of the research and development (R&D) is done in Shenzhen, China.

"We have set up an office in Singapore as the HQ for South-east Asia. We want to use Singapore as a springboard into the broader South-east Asia market," the Tencent alumnus said, adding that the group is looking to venture into Vietnam, Thailand and the Philippines, where demand for online trading is huge.

A computer science and technology graduate, Mr Li in 2000 joined Tencent, where he invented 23 international and domestic patents. He was involved in Tencent QQ, one of the largest instant messaging apps in China, and a founder of Tencent Video. When Tencent got listed in 2004, he began deploying billions of HK dollars in the stock market and is estimated to have paid more than HK$5 billion in commissions to his stock broker.

But he was unhappy with his early market experiences. Many trading interfaces were not user-friendly and had careless client services in spite of the high service charges.

In 2007, Mr Li and a founding team started looking deeper into the Hong Kong stock trading system. He wanted to use his technology background and user-oriented mindset to disrupt the online stock brokerage industry in Hong Kong. That led to the establishment of Futu in 2012.

"Futu's mission is to make investing easier. From day one, a large percentage of employees were dedicated to R&D, with over 70 per cent of our 1,300 employees involved in R&D. Our technology investment and infrastructure are our biggest competitive edge in the industry," said Mr Li.

Sharpening this edge is Futu's integration of its stock trading platform with market news and information, wealth management and enterprises to develop a one-stop online financial platform. Mr Li took Tencent's social community model to build a community of traders at both ends of the spectrum from the most sophisticated tech millionaires to the uneducated retail investors.

Its social community on its platform not only connects users to the capital markets, but also to other investors and listed companies.

Futu has amassed 13 million users from over 200 countries globally and its daily average users have surpassed one million.

"This community is very vibrant and users can exchange trading ideas there which increases user retention and user stickiness," Mr Li said.

Hence, even though digitised brokerage and wealth apps is a crowded space, especially in Hong Kong which is home to close to 600 such brokers, Mr Li is confident about Futu's unique propositions.

"We are one of the few players in Hong Kong that build this proprietary trading system from trade execution to trade clearing and trade settlement so that brings us a trading system that is way more stable and efficient than our peers.

"We can execute our trades within 0.0037 second and we have a high surface availability rate of 99.8 consistently. That's the level of stability and trade efficiency that our peers cannot compare with," he added.

Operating efficiency brought by its technological infrastructure means that Futu's commission rate is 20 per cent of the industry average in Hong Kong.

While Futu's commission rates are one of the lowest in Hong Kong, there are a few others that offer zero commission.

"But compared to them, Futu has scaled way faster because ultimately prices are just one of the factors that users pick when selecting brokers," Mr Li noted.

For Q3 2020, Futu's net income margin was 42 per cent, up from 9 per cent a year ago.

"It is very clear that there are economies of scale embedded in the online brokerage model. As we scale our platform, our revenue increases much faster than our cost. So we are able to serve an incremental amount of users at zero cost. Our profitability is very compelling," he explained.

Futu's business model makes it quite difficult to forecast its financials because the brokerage business is inherently cyclical and tied to the stock market performance.

To mitigate this uncertainty, Futu has a long-term approach to attract and retain as many users to its platform.

"Users may contribute more or less revenue to us depending on the market situations but as long as they stick to Futu, there are a lot of monetisation opportunities," Mr Li said, adding that last year Futu expanded its product suites, and started wealth management along with a diverse range of products.

"The vision for Futu is to become an influential global online financial services platform - a one-stop platform where users can manage all their assets. Stock brokerage is something we focus on right now, but we also want to cater to all financial needs including cash management and wealth management," Mr Li added.

"We are in the process of applying for a virtual banking licence in Hong Kong. So in the medium term we want to venture into the banking territory and we have an insurance broker licence in Hong Kong as well."

Since its Nasdaq listing, Futu has risen from US$12 to more than US$165.

For Q3, Futu's total revenues increased 272.1 per cent on year to HK$946.2 million and net income was up 18 times to HK$401.7 million.