A highly profitable options trade timed just before China's regulatory crackdown on cross-border brokerages has drawn scrutiny from the U.S. Securities and Exchange Commission (SEC). According to Reuters and the Straits Times, the SEC is probing whether traders illegally profited from inside information to rack up over $100 million in gains from options on Futu Holdings and Tiger Brokers (parent Up Fintech Holdings).
Susquehanna Loses $70M, Sues 100 John Does
The traders spent roughly $12 million on put options days before China's May 22 announcement that Futu and Tiger Brokers were operating illegally without licenses. The stocks plunged, and the options turned into a windfall. The counterparty was Susquehanna International Group (SIG), a major options market maker that lost over $70 million on the trades.
On June 29, SIG filed a lawsuit in Manhattan federal court against 100 unnamed defendants, referred to as "John Doe." The firm argued the bets "had no reasonable commercial explanation other than insider trading," suggesting the traders may have received tips from Chinese regulators or company insiders.
China's Penalty: Futu Fined $2.5B, Founder Lost $1.7B in One Day
Following the crackdown, Futu was fined 18.5 billion yuan (about $2.5 billion), and founder Leaf Li saw his personal wealth drop by $1.7 billion in a single day. Tiger Brokers' stock also collapsed. The option trading volume in the days before the announcement was abnormally high, with traders loading up on out-of-the-money puts.
SEC Review, Account Freezes, and SIG's Global Hunt
The SEC is conducting a preliminary review of the trades but declined to comment. A federal judge has approved SIG's request to freeze accounts at Interactive Brokers, Futu, and Tiger Brokers related to the trades. Interactive Brokers said it is cooperating with the court order. SIG is also using subpoenas to force these brokerages to reveal the identities of the account holders.
Susquehanna is no small player: it held $893 billion in equity positions in the first quarter, and co-founder Jeff Yass is worth an estimated $93 billion. The battle between this Wall Street giant and the anonymous traders could escalate into a cross-border regulatory storm.