The China Securities Regulatory Commission initiated comprehensive investigations into Tiger Securities, Futu Holdings, and Changqiao Securities, targeting both domestic and overseas entities. On the same evening, US-listed entities faced severe financial penalties: Futu Holdings was fined approximately 1.85 billion yuan with founder Li Hua receiving a 1.25 million yuan fine, while Tiger Securities incurred a 411 million yuan penalty alongside a 1.25 million yuan fine for CEO Wu Tianhua. Market reaction was immediate and severe, with shares of both companies plummeting over 30% before the US market opened the following day. This escalation was not an isolated incident but the culmination of a regulatory trajectory spanning from October 2021 to May 2023, characterized by the removal of apps like Futu Niuniu and Tiger International from mainland stores and the classification of these operations as illegal securities business. The decisive blow came with the State Council-approved "Comprehensive Rectification Plan for Illegal Cross-border Securities, Futures, and Fund Business Operations," issued jointly by the CSRC and eight other departments including the Ministry of Public Security and the People's Bank of China. This plan mandates a two-year concentrated rectification period where existing customers can only sell or withdraw funds, with a complete shutdown of domestic websites and trading software required thereafter.

Market speculation initially suggested that tokenized stocks on blockchain platforms could serve as a reservoir for funds displaced from Tiger Securities and Futu Holdings. Data compiled by Woofun AI indicates that while tokenized US stocks have gained traction in gray areas, this potential migration path faces a formidable regulatory wall. In February 2026, the CSRC and allied authorities explicitly prohibited RWA tokenization within China and imposed strict regulations on overseas issuance of asset-backed securities tokens based on domestic assets. Cao Xiao, deputy dean of the School of Finance at Shanghai University of Finance and Economics, noted that the blockchain-based securitization model remains immature with unclear risks, justifying the prohibition as a precautionary measure. Under this framework, any RWA tokenization activity, including intermediary and IT services, is classified as illegal financial activity, encompassing unauthorized token issuance and illegal fundraising. A study by Tsinghua University's PBC School of Finance further highlighted that the 2017 ICO ban profoundly impacts RWA tokenization, as the issuance and trading of tokens are legally indistinguishable from prohibited ICO activities.

Consequently, major cryptocurrency exchanges have preemptively excluded mainland Chinese investors from their stock token services to mitigate legal exposure. At the end of 2025 and beginning of 2026, platforms such as Binance and Kraken launched or restarted US stock token services with explicit geographic restrictions. Kraken's xStocks operates through a Bermuda-licensed entity where tokens are held by an offshore special purpose vehicle, explicitly barring access for investors from the Chinese mainland and the United States. Similarly, Ondo Finance restricts its stock tokens to users in Asia, Europe, Africa, and Latin America, excluding the Chinese mainland entirely. Woofun AI observes that the envisioned 24/7 borderless DeFi-compatible parallel stock market is effectively closed to mainland investors, as regulators have simultaneously blocked traditional cross-border brokerage channels and the alternative RWA tokenization route. This systematic encirclement ensures that funds from Tiger Securities and Futu Holdings cannot be seamlessly transferred to blockchain-based alternatives.

Beyond regulatory barriers, the structural immaturity of blockchain-based US stocks presents significant risks for large-scale retail capital. Current stock tokens are not actual equity but encrypted tokens issued by third parties, lacking voting rights and limiting investor interests to price tracking. A critical vulnerability exists in the potential disconnection between token prices and underlying stocks, as issuers may utilize SPVs or financial derivatives to replicate returns; if these institutions face difficulties, investor compensation rights remain highly uncertain. Historical precedents underscore these risks, such as Binance's 2021 launch of Tesla stock tokens using BUSD, which was discontinued within three months due to interventions by securities regulators in multiple countries. The permissionless nature of stock tokens fundamentally conflicts with mandatory disclosure requirements under securities law, creating fertile ground for market manipulation.

Although platforms like Ondo and xStocks claim to conduct KYC verifications for primary market participants, secondary market transfers between anonymous accounts remain possible, facilitating insider trading. The Hong Kong Securities and Futures Commission has responded with heightened vigilance, issuing a circular on the same day as the eight-department rectification plan that demands stricter monitoring during account opening to detect forged documents. Ye Zhiheng, executive director of the Intermediary Institutions Department, stated a zero-tolerance policy toward monitoring failures and document fraud. This regulatory tightening extends beyond the immediate penalties on brokerage firms, signaling a comprehensive crackdown on any attempt to circumvent capital control. Woofun AI analysis suggests that the heavy fines serve as a clear warning that overseas licenses do not grant immunity for operating within China, and illegal activities will face full-chain regulation.

Over the next two years, the one-way selling mechanism for existing Tiger Securities and Futu Holdings customers will force capital reallocation, with funds flowing back into the domestic market, moving through compliant channels like QDII, or remaining as offshore dollar assets. Investing in blockchain-based US stocks via cryptocurrency exchanges is unlikely to become a mainstream option, as the current regulatory framework categorizes this path as illegal financial activity from the outset. The broader implication for the cryptocurrency industry is that clearing gray areas in traditional finance inevitably draws scrutiny to crypto assets, particularly those with high legal similarity to stocks and funds. As Ki Young Ju, founder of CryptoQuant, recently noted, while crypto ETFs in traditional finance perform well, stocks on crypto platforms remain weak, raising the critical question of demand if native crypto users cease purchasing these assets. The era of cross-border stock trading via unregulated channels is ending, replaced by a strictly enforced regulatory perimeter that leaves no room for tokenized alternatives.