tm2231949-3_424b3 - none - 18.2188221s
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 Filed Pursuant to Rule 424(b)(3)
 Registration No. 333-248076
PROSPECTUS SUPPLEMENT
(to Prospectus Dated August 17, 2020)
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Futu Holdings Limited
Class A Ordinary Shares
Lera Ultimate Limited is lending to the designated dealers 50,000,000 of our Class A ordinary shares, par value US$0.00001 per share, or approximately 5.72% of our total Class A ordinary shares issued and outstanding immediately upon listing (as defined below) (without taking into account the Class A ordinary shares to be issued pursuant to the share incentive plans), to facilitate the proposed listing of our Class A ordinary shares on the Main Board of The Stock Exchange of Hong Kong Limited, or the Hong Kong Stock Exchange, by way of introduction, or the Listing. Our Class A ordinary shares will be traded on the Hong Kong Stock Exchange under the stock code “3588.”
The Class A ordinary shares being lent hereby will be used by the designated dealers to create additional liquidity of our Class A ordinary shares on the Hong Kong Stock Exchange through sales at market prices during a one-month period from and including the listing date of our Class A ordinary shares on the Hong Kong Stock Exchange, which is expected to be on or about December 30, 2022, or the Listing Date. See “Description of Liquidity Arrangements.” The Class A ordinary shares are being registered hereby in connection with the sale of such shares to the extent that they are sold to U.S. persons, as defined under Regulation S, or for the account or benefit of U.S. persons.
Neither we nor Lera Ultimate Limited will receive any proceeds from the lending of the Class A ordinary shares being registered hereby, which will be sold at prevailing market prices at the time of sale in liquidity trades on the Hong Kong Stock Exchange during the liquidity period with delivery expected to occur from time to time in accordance with the rules of the Hong Kong Stock Exchange.
The ADSs, representing our Class A ordinary shares, are listed on the Nasdaq Global Market, or Nasdaq, under the symbol “FUTU.” Each ADS represents eight Class A ordinary shares. On December 21, 2022, the last reported sale price of the ADSs on Nasdaq was US$62.03 per ADS.
Investing in the ADSs and our Class A ordinary shares involves risks. See “Risk Factors” beginning on page S-26 of this prospectus supplement and in any documents incorporated by reference into this prospectus supplement for a discussion of certain risks that should be considered in connection with an investment in our Class A ordinary shares.
Futu Holdings Limited, or Futu Holdings, is not an operating company but a Cayman Islands holding company conducting a significant portion of operations through its wholly-owned subsidiaries, including in Hong Kong, Singapore, the United States and Australia. Because Futu Holdings is an exempted company incorporated in the Cayman Islands, it is classified as a foreign enterprise, and its wholly-owned PRC subsidiaries are foreign-invested enterprises under PRC laws and regulation, and none of them is generally allowed to own more than 50% of the equity interests in PRC companies that are value-added telecommunication service providers.
In order to provide certain value-added telecommunication services in China while ensuring compliance with PRC laws and regulations, Shensi Network Technology (Beijing) Co., Ltd., one of the wholly-owned subsidiaries of Futu Holdings incorporated in the PRC, or the WFOE, has entered into a series of contractual arrangements with the Shenzhen Futu Network Technology Co., Ltd. and Hainan Futu Information Services Co., Ltd., each, a company incorporated in the PRC, or collectively, the VIEs, and their shareholders. The contractual agreements are designed to provide Futu Holdings economic exposure to each VIE’s value-added telecommunication services in China where PRC law prohibits, restricts or impose conditions on direct equity investment in the VIEs. As used in this prospectus supplement, “Futu,” “we,” “us,” “our company,” or “our” refer to Futu Holdings and its subsidiaries and, in the context of describing our operations and consolidated financial information, also include the VIEs and their subsidiaries, unless the context otherwise requires.
As a result of the contractual agreements with the VIEs, Futu Holdings becomes the primary beneficiary of the VIEs for accounting purposes and treat it as a PRC consolidated entity under U.S. GAAP. Neither we nor our investors own any equity ownership in, direct foreign investment in, or control of the VIEs as a result of the WFOE’s contractual agreements with the VIEs and their shareholders. As a result, holders of the ADSs are not purchasing equity interest in the VIEs or their subsidiaries but instead are purchasing equity interest in Futu Holdings, a Cayman Islands holding company whose consolidated financial results include those of the VIEs and their subsidiaries under U.S. GAAP.
Our corporate structure involves unique risks to holders of the ADSs. Historically, the operations of the VIEs and their subsidiaries constituted an immaterial portion of our consolidated total revenues and total assets. In 2019, 2020 and 2021, we generated 0.2%, 0.3% and 0.3% of our total revenues through the VIEs in China, respectively, whose assets accounted for 0.1%, 0.1% and 0.1% of our total assets during the same years, respectively. However, we rely on contractual arrangements with the VIEs and their shareholders for a limited part of our business operations in China, and these contractual arrangements may not be as effective as direct ownership in providing us with control over the VIEs. We rely on the performance by the VIEs and their shareholders of their obligations under the contracts to exercise control over the VIEs. The shareholders of the VIEs may not act in the best interests of us or may not perform their obligations under these contracts. Uncertainties regarding the interpretation and implementation of the contractual arrangements with the VIEs could limit our ability to enforce such agreements. If the PRC authorities determine that the contractual arrangements constituting part of the VIEs structure do not comply with PRC regulations, or if current regulations change or are interpreted differently in the future, our ability to settle amount owed by the VIEs under the VIE agreements may be seriously hindered and we could be subject to material penalties or be forced to relinquish our interests in those operations. Our contractual arrangements with the VIEs and their shareholders have not been tested in a court of law in the PRC and foreign investors may never be allowed to hold equity interests in the VIEs and their subsidiaries under PRC laws and regulations. Chinese regulatory authorities could in the future disallow these agreements, which would likely affect our operations in China. Please refer to risks disclosed under “Item 3. Key Information — D. Risk Factors — Risks Related to Our Operation in China” in our annual report on Form 20-F for the fiscal year ended December 31, 2021, or the 2021 Form 20-F and “Risk Factors — Risks Related to Our Corporate Structure” in Exhibit 99.1 to our current report on Form 6-K furnished to the SEC at 6:58 A.M. (Eastern Time) on December 22, 2022, or the Supplemental 6-K, both of which documents are incorporated herein by reference.

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We and the VIEs face various legal and operational risks and uncertainties related to our operations in China, including complex and evolving PRC laws and regulations. For example, we and/or the VIEs face risks associated with regulatory approvals on offshore offerings, the use of variable interest entities, anti-monopoly regulatory actions, and oversight on cybersecurity and data privacy, as well as the lack of inspection by the Public Company Accounting Oversight Board, or PCAOB, on our independent registered public accounting firm, which may impact our ability to conduct certain businesses, accept foreign investments, or list on a U.S. or other foreign exchange. These risks could result in a material adverse change in our operations and the value of the ADSs, significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause such securities to significantly decline in value. The Chinese government may intervene or influence our operations at any time, or may exert more oversight and control over offerings conducted overseas and/or foreign investment in China-based issuers, which could result in a material change in our operations and/or the value of the ADSs. Any actions by the Chinese government to exert more oversight and control over offerings that are conducted overseas and/or foreign investment in China-based issuers could significantly limit or completely hinder our ability to offer or continue to offer securities to investors and cause the value of such securities to significantly decline. For a detailed description of risks relating to doing business in China, please refer to “Item 3. Key Information — D. Risk Factors — Risks Related to Our Operations in China” in our 2021 Form 20-F and “Risk Factors — Risks Related to Our Presence in China” in Exhibit 99.1 to the Supplemental 6-K.
On December 18, 2020, the Holding Foreign Companies Accountable Act, or HFCAA, was enacted. Under the HFCAA, the SEC will prohibit our securities from being listed on U.S. securities exchanges or traded “over-the-counter” if we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021 or any year thereafter. Our auditor is located in China, a jurisdiction where the PCAOB was unable to conduct inspections and investigations before 2022. The related risks and uncertainties could cause the value of the ADSs representing our Class A ordinary shares to significantly decline or be worthless. On April 21, 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 20-F for the fiscal year ended December 31, 2021. In accordance with the HFCAA, our securities will be prohibited from being traded on a national securities exchange or in the over-the-counter trading market in the United States if the PCAOB is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in China for three consecutive years, or for two consecutive years if proposed changes to the law are enacted. As a result, the Nasdaq may decide to delist our securities. On August 26, 2022, the PCAOB signed a Statement of Protocol with the China Securities Regulatory Commission and the Ministry of Finance of China, the Chinese authorities governing inspections and investigations of audit firms based in China, which marks taking the first step toward providing opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in Mainland China and Hong Kong. On December 15, 2022, the PCAOB announced that it was able to secure complete access to inspect and investigate PCAOB-registered public accounting firms headquartered in Mainland China and Hong Kong in 2022. The PCAOB vacated its previous 2021 determinations that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in Mainland China and Hong Kong. For this reason, we do not expect to be identified as a Commission-Identified Issuer following the filing of our annual report for the fiscal year ending December 31, 2022. However, whether the PCAOB will continue to be able to satisfactorily conduct inspections of PCAOB-registered public accounting firms headquartered in Mainland China and Hong Kong is subject to uncertainty and depends on a number of factors out of our, and our auditor’s, control. The PCAOB is continuing to demand complete access in Mainland China and Hong Kong moving forward and is already making plans to resume regular inspections in early 2023 and beyond, as well as to continue pursuing ongoing investigations and initiate new investigations as needed. The PCAOB has indicated that it will act immediately to consider the need to issue new determinations with the HFCAA if needed. If the PCAOB in the future again determines that it is unable to inspect and investigate completely auditors in Mainland China and Hong Kong, we may be identified as a Commission-Identified Issuer accordingly. In addition, on December 20, 2022, a proposed legislation entitled “Consolidated Appropriations Act, 2023” was released and it also contains the provision which would reduce the number of consecutive non-inspection years required for triggering the prohibitions under the HCFAA from three years to two. This proposed legislation was first approved in the U.S. Senate on December 22, 2022, and is expected to be considered for approval then in the U.S. House of Representatives on or before December 23, 2022. If this proposed legislation is approved by the U.S. Congress and signed into law by President Biden in its current form, then our shares and the ADSs could be prohibited from trading in the United States in a shorter period in the event that we become identified as a Commission-Identified Issuer. If our shares and the ADSs are prohibited from trading in the United States in the future, such a prohibition would substantially impair the ability of our investors to sell or purchase the ADSs when they wish to do so, and the risk and uncertainty associated with delisting would have a negative impact on the price of our Class A ordinary shares or the ADSs. For more details, see “Risk Factors — Risks Related to Our Presence in China — The audit report included in SEC filings had historically been prepared by an auditor who was not inspected by the Public Company Accounting Oversight Board and, as such, our investors have been deprived of the benefits of such inspection” and “Risk Factors — Risks Related to Our Presence in China — The ADSs could be delisted from the Nasdaq Global Market and prohibited from trading “over the counter” if the Public Company Accounting Oversight Board is unable to inspect auditors located in China. The delisting of the ADSs from the Nasdaq Global Market and inability to trade, or the threat thereof, may materially and adversely affect the value of your investment” in Exhibit 99.1 to the Supplemental 6-K.
Futu Holdings is incorporated in the Cayman Islands and its businesses in China are conducted mainly through its PRC subsidiaries and partly through the VIEs and their subsidiaries. We face various restrictions and limitations on foreign exchange, our ability to transfer cash between entities, across borders and to U.S. investors, and our ability to distribute earnings from our subsidiaries and/or the VIEs and their subsidiaries, to Futu Holdings and holders of the ADSs as well as the ability to settle amounts owed under the contractual arrangements with the VIEs. Current PRC regulations permit our PRC subsidiaries, including the WFOE, to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, each of our PRC subsidiaries, the VIEs and their PRC subsidiaries are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of their respective registered capital. Our PRC subsidiaries and the VIEs and their subsidiaries may also allocate a portion of their after-tax profits based on PRC accounting standards to employee welfare and bonus funds at their discretion. These reserves are not distributable as cash dividends. Furthermore, if the WFOE incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments to us. In addition, the PRC tax authorities may require us to adjust our taxable income under the contractual arrangements we currently have in place in a manner that would materially and adversely affect the WFOE’s ability to pay dividends and other distributions to us. Any limitation on the ability of our PRC subsidiaries, including the WFOE, to distribute dividends to us or on the ability of the VIEs to make payments to the WFOE may restrict our ability to satisfy our liquidity requirements. For more details, please refer to “Item 4. Information on the Company — B. Business Overview-Regulation — Overview of the Laws and Regulations Relating to Our Business and Operations in China — Regulations on Dividend Distribution” in our 2021 Form 20-F and “Prospectus Supplement Summary — Transfer of Cash Through Our Organization” in this prospectus supplement.
Neither the United States Securities and Exchange Commission nor any other regulatory body has approved or disapproved of these securities, or determined if this prospectus supplement or the accompanying prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
The date of this prospectus supplement is December 22, 2022.

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ABOUT THIS PROSPECTUS SUPPLEMENT
This document is in two parts. The first part is this prospectus supplement, which describes the registration of certain Class A ordinary shares under the liquidity arrangements as described under “Description of Liquidity Arrangements” and also adds to and updates information contained in the accompanying prospectus and the documents incorporated by reference in this prospectus supplement and the accompanying prospectus. The second part is the accompanying prospectus dated August 17, 2020, included in the registration statement on Form F-3 (No. 333-248076), which provides more general information.
You should read this prospectus supplement along with the accompanying prospectus. Both parts of the document contain information you should consider when making your investment decision. You should rely only on the information included or documents incorporated by reference in this prospectus supplement and the accompanying prospectus. Neither we nor Lera Ultimate Limited has authorized anyone else to provide you with different information. If anyone provides you with different or inconsistent information, you should not rely on such different or inconsistent information. The Class A ordinary shares registered hereby will be offered only in jurisdictions where it is lawful to do so. The information contained in this prospectus supplement, the accompanying prospectus and the documents incorporated herein by reference is current only as of the date of the document containing such information. Our business, financial condition, results of operations and prospects may have changed since those dates. Neither this prospectus supplement nor the accompanying prospectus constitutes an offer, or an invitation on our behalf or the lending shareholders’ behalf, to subscribe for and purchase, any of the ADSs or Class A ordinary shares and may not be used for or in connection with an offer or solicitation by anyone, in any jurisdiction in which such an offer or solicitation is not authorized or to any person to whom it is unlawful to make such an offer or solicitation.
To the extent there is a conflict between the information contained in this prospectus supplement, on the one hand, and the information contained in the accompanying prospectus or any document incorporated by reference in this prospectus supplement or the accompanying prospectus, on the other hand, you should rely on the information in this prospectus supplement.
In this prospectus supplement, unless otherwise indicated or unless the context otherwise requires, references to:

“ADS(s)” are to American depositary shares, each of which represents eight Class A ordinary shares;

“AFRC” are to Accounting and Financial Reporting Council;

“average DAUs” are to the average number of DAUs on each trading day during a specific period;

“Beijing Futu” are to Beijing Futu Network Technology Co., Ltd., a company established under the laws of PRC with limited liability on April 4, 2014, and a VIE of our company;

“Beijing Shensi Consulting” are to Beijing Shensi Consulting Services Co., Ltd., a company established under the laws of PRC with limited liability on December 8, 2021, and a VIE of our company;

“China,” “Mainland China” and the “PRC” are to the People’s Republic of China, excluding, for the purposes of this prospectus supplement only, Hong Kong, Macau and Taiwan;

“Class A ordinary shares” are to our Class A ordinary shares, par value US$0.00001 per share;

“Class B ordinary shares” are to our Class B ordinary shares, par value US$0.00001 per share;

“client asset balance” are to the asset balance in the trading accounts of our paying clients;

“clients” are to the number of users who open one or more trading accounts with us;

“DAUs” are to the number of user accounts and visitors who access our platforms Futubull and/or moomoo, at least once on a given trading day. Some visitors may access our platforms using more than one device on a given trading day, and we calculate the number of visitors who access our platforms based on the number of devices used by the visitors to access our platforms;

“Futu,” “we,” “us,” “our company,” “our” or “Group” are to Futu Holdings and its subsidiaries and, in the context of describing our operations and consolidated financial information, also include the VIEs and their subsidiaries, unless the context otherwise requires;
 
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“Futu Australia” are to Futu Securities (Australia) Ltd., our wholly-owned subsidiary incorporated in Australia;

“Futu Holdings” are to Futu Holdings Limited, our Cayman Islands holding company;

“Futu Hong Kong” are to Futu Securities (Hong Kong) Limited, our wholly-owned subsidiary incorporated in Hong Kong;

“Futu International Hong Kong” are to Futu Securities International (Hong Kong) Limited, our wholly-owned subsidiary incorporated in Hong Kong;

“Hainan Futu” are to Hainan Futu Information Services Co., Ltd., a company incorporated in the PRC that has entered into a series of contractual arrangements with the WFOE;

“HK$” and “Hong Kong dollars” are to the legal currency of Hong Kong;

“MAUs” are to the number of user accounts and visitors who access Futubull and/or moomoo at least once during the calendar month in question. Some visitors may access our platforms access our platforms using more than one device in a given month, and we calculate the number of visitors who access our platforms based on the number of devices used by the visitors to access our platforms;

“paying clients” are to the number of clients with assets in their trading accounts with us;

“RMB” and “Renminbi” are to the legal currency of China;

“SFC” are to the Securities and Futures Commission of Hong Kong;

“shares” and “ordinary shares” are to our Class A ordinary shares and Class B ordinary shares;

“Shenzhen Futu” are to Shenzhen Futu Network Technology Co., Ltd., a company incorporated in the PRC that has entered into a series of contractual arrangements with the WFOE;

“US$,” “U.S. dollars,” “$,” and “dollars” are to the legal currency of the United States;

“users” are to the number of user accounts registered with our applications or websites;

“VIE(s)” are to Shenzhen Futu and Hainan Futu; and

“WFOE” or “Shensi Beijing” are to Shensi Network Technology (Beijing) Co., Ltd., our wholly-owned subsidiary incorporated in the PRC.
Capitalized terms used in this prospectus supplement but not defined herein are defined in the accompanying prospectus, in our 2021 Form 20-F that is incorporated herein by reference or in the Supplemental 6-K that is incorporated herein by reference.
Our reporting currency is Hong Kong dollars. This prospectus supplement contains translations of certain foreign currency amounts into U.S. dollars for the convenience of the reader. Unless otherwise stated, the conversions between U.S. dollars and Hong Kong dollars were made at the rate of HK$7.7756 to US$1.00, the exchange rate on December 15, 2022 set forth in the H.10 statistical release of The Board of Governors of the Federal Reserve Board. All translations of financial data as of and for the six months ended June 30, 2022 between U.S. dollars and Hong Kong dollars were made at the rate of HK$7.8472 to US$1.00, the exchange rate on June 30, 2022 in the H.10 statistical release of The Board of Governors of the Federal Reserve Board. All translations of financial data as of and for the nine months ended September 30, 2022 between U.S. dollars and Hong Kong dollars were made at the rate of HK$7.8498 to US$1.00, the exchange rate on September 30, 2022 in the H.10 statistical release of The Board of Governors of the Federal Reserve Board. Any discrepancies in any table between totals and sums of amounts listed therein are due to rounding.
 
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus supplement, the accompanying prospectus and the documents incorporated by reference herein and therein may contain statements that constitute forward-looking statements. All statements other than statements of historical facts are forward-looking statements. These forward-looking statements are made under the “safe harbor” provisions of the U.S. Private Securities Litigation Reform Act of 1995. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from those expressed or implied by the forward-looking statements.
You can identify some of these forward-looking statements by words or phrases such as “believe(s),” “aim(s),” “estimate(s),” “plan(s),” “project(s),” “anticipate(s),” “expect(s),” “intend(s),” “may,” “seek(s),” “can,” “could,” “ought to,” “potential,” “will” or “should” or other similar expressions. We have based these forward-looking statements largely on our current expectations and projections about future events that we believe may affect our financial condition, results of operations, business strategy and financial needs. These forward-looking statements include statements relating to:

our operations and business prospects;

our ability to maintain relationship with, and the actions and developments affecting, our customers and suppliers;

future developments, trends and conditions in the industries and markets in which we operate;

general economic, political and business conditions in the markets in which we operate;

changes to the regulatory environment in the industries and markets in which we operate;

the ability of third parties to perform in accordance with contractual terms and specifications;

our ability to retain senior management and key personnel, and recruit qualified staff;

our business strategies and plans to achieve these strategies, including our expansion plans;

the actions and developments of our competitors;

our ability to reduce costs and offer competitive prices;

our ability to defend our intellectual rights and protect confidentiality;

change or volatility in interest rates, foreign exchange rates, equity prices, trading volumes, commodity prices and overall market trends;

capital market developments; and

our dividend policy.
We would like to caution you not to place undue reliance on these forward-looking statements. You should read these statements in conjunction with the risk factors disclosed herein, in the accompanying prospectus, and in the documents incorporated by reference herein and therein for a more complete discussion of the risks of an investment in our securities. We operate in a rapidly evolving environment. New risks emerge from time to time and it is impossible for our management to predict all risk factors, nor can we assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ from those contained in any forward-looking statement. We do not undertake any obligation to update or revise the forward-looking statements except as required under applicable law.
 
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PROSPECTUS SUPPLEMENT SUMMARY
The following summary is qualified in its entirety by, and should be read in conjunction with, the more detailed information and financial statements and notes thereto appearing elsewhere in this prospectus supplement, the accompanying prospectus, and the documents incorporated by reference herein and therein. In addition to this summary, we urge you to read the entire prospectus supplement, the accompanying prospectus, and the documents incorporated by reference carefully. Our 2021 Form 20-F which contains our audited consolidated financial statements as of December 31, 2020 and 2021 and for the years ended December 31, 2019, 2020, and 2021, and the Supplemental 6-K are incorporated by reference in this prospectus supplement and the accompanying prospectus. This prospectus supplement contains information from a market research report, commissioned by us and prepared by CIC, an independent market research and consulting company.
Overview
We are a leading one-stop financial technology platform transforming the investing experience with our fully digitalized securities brokerage and wealth management product distribution services in Hong Kong. We launched our business on the premise that no one should be precluded from investing on the basis of prohibitive transaction costs or market inexperience. Technology permeates every part of our business, allowing us to offer a redefined user experience built upon a secure, stable, agile and scalable online platform. Today, we have become a market leader in Hong Kong in the retail securities brokerage industry and a go-to brand for retail securities trading. According to CIC, we are the largest securities broker in terms of retail securities trading volume on the Hong Kong Stock Exchange, with a market share of 10.7% as of December 31, 2021.
A securities brokerage service provider at inception, we are now an all-rounded online financial services platform, seamlessly integrating services and products including trading, wealth management product distribution, market data and information, user community, investor education, and corporate services with a focus on the online securities brokerage market. As an intuitive and easy-to-navigate platform, we are serving approximately 19.2 million users as of the date of this prospectus supplement. We primarily attract the emerging affluent and tech-savvy generation of investors, evidenced by the average paying client age of 37 and average paying client assets of over HK$310,000 on our platform as of June 30, 2022. We provide a comprehensive range of investment products, including equities and derivatives across major global exchanges, margin financing and securities lending, as well as fund and bond investments. Our vibrant user community further engages our users and provides them with direct access to listed companies, fund houses, exchanges, media and research institutions that have accounts in our user community through communication with their representatives.
We have developed a proprietary and highly automated technology infrastructure encompassing every aspect of our business operations, from account opening, fund transfer, trading and investment, to risk management. Our technology infrastructure provides us with crucial advantages:

Integrated cross-market platform.   We have developed an easy-to-use and highly integrated cross-market system which allows our clients to view and execute trades in different markets as a unified market from one single platform, with streamlined functionality extending from core trading, real-time risk management to multicurrency, multi-market settlement.

Security and stability.   Our platform features an automated multi-level protection mechanism and strict security measures such as data encryption and two-factor authentication, to protect our clients’ personal information and trading data.

Agility and scalability.   Our platform is built on a cloud-based distributed infrastructure and highly modularized architecture, each component of which can be separately upgraded and replaced, significantly reducing the launch cycle, accelerating response time, and enhancing scalability.

Big data and AI capabilities.   We have established an intelligent risk control platform built on our proprietary algorithms, which is capable of analyzing different types, sources and stages of risks and providing margin ratio adjustment recommendations and early risk warnings. We have also developed AI-based customer service function leveraging our big data analytic and natural language processing capabilities.
 
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Our Platform and Services
We operate a leading technology-driven online securities brokerage and wealth management product distribution platform, which enables us to digitally provide a wide range of products and services to our users and clients from a single profile. We ensure an omni-terminal access to our platform from mobile phones, tablets and computers, either through our purpose-built applications or internet browsers.
Futubull is our primary platform, which is mainly available to users based in Hong Kong and Mainland China. We also launched moomoo in the U.S., Singapore and Australia as part of our international expansion. Our users and clients can access to all of our products and services seamlessly from a single profile on our platform, including: (i) trade execution for securities across major exchanges in Hong Kong, Singapore, the U.S. and Australia; (ii) margin financing and securities lending; (iii) wealth management product distribution including fund and bond investments; (iv) market data and information; and (v) user community. We also offer corporate services to enterprises, including: (i) IPO distribution; (ii) investor relations and marketing; (iii) ESOP solution services and (iv) trust services. The following diagram illustrates the comprehensive services we provide to our users and clients:
[MISSING IMAGE: oc_ourplatform-4c.jpg]
Key Operating Data
The table below sets forth the growth of our platform in terms of users, clients and client assets during the relevant periods indicated(1):
As of/For the month ended December 31
As of/For
the month
ended June 30,
2022
2019
2020
2021
Users
7,513,887 11,916,648 17,374,296 18,649,821
MAUs
615,199 1,831,807 2,219,274 2,060,040
Average DAUs
208,340 679,565 985,630 983,167
Clients
717,842 1,419,734 2,751,239 3,021,790
Paying clients
198,382 516,721 1,244,222 1,387,146
Total client asset balance (HK$ billion)
87.1 285.2 407.8 433.6
Average paying client asset balance (HK$)
439,182 551,923 327,758 312,579
 
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Notes:
(1)
For each relevant year/period prior to January 1, 2021, figures are only inclusive of those under Futubull or Futu International Hong Kong, as applicable. For each subsequent period since January 1, 2021, figures are also inclusive of those under moomoo or Moomoo Financial Inc., Moomoo Financial Singapore and Futu Australia, as applicable.
Together with the growth of our trading platform, the client asset balance on our platform also increased for the markets that we serve. Set forth below is a breakdown by stock exchange of the total client asset balance on our platform during the relevant periods indicated:
For the year ended December 31
For
the six months
ended June 30,
2022
2019
2020
2021
(HK$ in millions)
Hong Kong Stock Exchange(1)
41,887 134,381 204,591 228,521
Major stock exchanges in the U.S
23,790 93,829 124,630 113,557
Singapore Exchange
1,360 1,977
Australian Securities Exchange
23
Others(2) 21,449 56,980 77,223 89,515
Notes:
(1)
Includes qualified northbound securities under Stock Connect listed on the Shanghai Stock Exchange or the Shenzhen Stock Exchange.
(2)
Includes cash, balance of wealth management products and net balance of futures products.
Our Competitive Strengths
We believe the following competitive strengths contribute to our success:

Market leading brand.   We are a market leader in Hong Kong and a go-to brand for retail securities trading, and have achieved consistently high growth.

Premier investing experience.   We make investing easier by crafting a premier user experience through technology capabilities, redefining industry best practices.

High-quality customer base.   Our platform has attracted a vast base of high-quality customers who are young, active, loyal and with potential to generate wealth.

Flywheel effects of corporate and retail services.   The high quality of our services offered to enterprises and individuals resulted in flywheel effects and enabled us to achieve efficient and effective customer acquisition.

Vibrant user community.   We make investing not alone through NiuNiu/Moo Community, a vibrant online community with social media tools for our users to interact, share, learn and grow.
Our Growth Strategies
Our vision is to become an influential global financial services platform, which we will continue to pursue through the following key strategies:

Grow our user and client base.   We strive to continuously grow our user and client base by word-of-mouth referral and precision marketing.

Enhance our ecosystem.   We will further enhance our synergistic ecosystem, through constantly broadening our product portfolio, adding new features and enriching the content in our NiuNiu/Moo Community as well as investing in our enterprise business.

Invest in our platform.   We will continue to invest in technology and talents, to maintain our competitive advantages and to facilitate the execution of our strategies.
 
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Expand in various markets.   We aim to expand our presence and improve our product offering capabilities in various markets, to capture global opportunities and nurture a global client base.
Summary of Risk Factors
Investing in our Class A ordinary shares involves significant risks. You should carefully consider all of the information in this prospectus supplement before making an investment in our Class A ordinary shares. Below please find a summary of the principal risks we face, organized under relevant headings. See “Risk Factors” on page S-26 of this prospectus supplement for a discussion of risks related to our ordinary shares, ADSs and the Listing. You should also carefully consider the matters discussed under “Item 3. Key Information — D. Risk factors” in our 2021 Form 20-F, “Risk Factors” in Exhibit 99.1 to the Supplemental 6-K, as well as other documents incorporated by reference in the accompanying prospectus.

We are subject to extensive and evolving regulatory requirements in the markets we operate in, non-compliance with which may result in penalties, limitations and prohibitions on our future business activities or suspension or revocation of our licenses and trading rights, and consequently may materially and adversely affect our business, financial condition, operations and prospects. In addition, we are involved in ongoing inquiries and investigation by relevant regulators;

Our online client onboarding procedures historically did not strictly follow the specified steps set out by the relevant authorities in Hong Kong, which may subject us to regulatory actions in addition to remediation, which may include, reprimands, fines, limitations or prohibitions on our future business activities and/or suspension or revocation of Futu International Hong Kong’s licenses and trading rights, and consequently may adversely affect our business, financial condition, operations, brand reputation and prospects;

We do not hold any license or permit for providing securities brokerage business in Mainland China. Although we do not believe we engage in securities brokerage business in Mainland China, there remain uncertainties as to the interpretation and implementation of relevant PRC laws and regulations or if any new PRC laws and regulations will be enacted to impose licensing requirements on us with respect to our activities in Mainland China and/or our provision of services to our PRC-based clients. If some of our activities in Mainland China were deemed by relevant regulators as provision of securities business such as securities brokerage services, investment consulting services, futures business and/or any other regulated services and business activities in Mainland China, our business, financial condition, results of operations and prospects may be materially and adversely affected;

Our operations and services involve collection, processing, and storage of significant amounts of data concerning our clients, business partners and employees and may be subject to complex and evolving laws and regulations regarding privacy and data protection and cybersecurity. If we fail to comply with the relevant laws and regulations, our business, results of operations and financial condition may be adversely affected;

We depend on contractual arrangements with the VIEs and their shareholders to operate a part of our business in China and to hold the necessary licenses for our operations, which may not be as effective as direct ownership in providing operational control and otherwise may have a material adverse effect as to our business; and

The ADSs could be delisted from Nasdaq and prohibited from trading “over the counter” if the Public Company Accounting Oversight Board is unable to inspect auditors located in China. The delisting of the ADSs from Nasdaq and inability to trade, or the threat thereof, may materially and adversely affect the value of your investment.
Corporate History and Structure
We commenced our operations in December 2007 through Shenzhen Futu to provide internet technology and software development services. Since then, Mr. Leaf Hua Li (our founder, chairman of the Board, executive Director and chief executive officer) has devoted his strong technology background and vision in financial technology industry and placed great emphasis on R&D and innovations in developing the Group’s business. Futu International Hong Kong was incorporated in April 2012, obtained a Type 1 License for dealing
 
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in securities from the SFC, and successfully launched our proprietary Hong Kong securities trading system and commenced the operation of our online securities brokerage business in Hong Kong in October 2012. We have been led by our founder, Mr. Li, who has over 20 years of experience and expertise in the technology and internet sectors in China.
In April 2014, our company was incorporated under the laws of the Cayman Islands as our holding company. Our company conducts its businesses through our subsidiaries as well as the VIEs and their subsidiaries controlled by us through the VIE contractual arrangements. A securities brokerage service provider at inception, we are now an all-round online financial services platform, integrating trading, wealth management product distribution, market data and information, user community, investor education, and corporate services. As of the date of this prospectus supplement, we held 51 licenses, registrations and memberships across Hong Kong, Singapore, the U.S., Australia and Europe, serving approximately 19.2 million users. In March 2019, we listed the ADSs on Nasdaq under the symbol “FHL” and currently traded under the symbol of “FUTU”.
Dual Class Voting Structure and Our Controlling Shareholders
Under our dual class voting structure, our share capital comprises Class A ordinary shares (which entitles the holders to exercise one vote per share) and Class B ordinary shares (which entitles the holders to exercise 20 votes per share). On November 21, 2022, pursuant to our existing Articles of Association, Mr. Li, being the beneficial owner of the Class B ordinary shares, has delivered an irrevocable written consent to our company, among other things, to consent to the modification of voting rights attached to each Class B ordinary share from 20 votes to ten votes, effective upon the proposed Listing in Hong Kong. Accordingly, each Class B ordinary share shall entitle its holder to exercise ten votes, on all matters that require a Shareholder’s vote, subject to Rule 8A.24 of the Hong Kong Listing Rules that requires a limited number of reserved matters, or the Reserved Matters, to be voted on a one vote per share basis (save for the specified exception for the compliance of Rule 8A.24 of the Hong Kong Listing Rules). Our company will put forth resolutions to amend the Articles of Association at the next general meeting following the Listing, which we have undertaken to convene on or before June 30, 2023.
Assuming (i) no further Shares are issued under our share incentive plans between the date of this prospectus supplement and the date of the proposed Listing in Hong Kong; and (ii) all Class B ordinary shares beneficially owned by Tencent Group through Qiantang River Investment Limited are converted to Class A ordinary shares upon the completion of the Introduction, Mr. Li will beneficially own and will control, through entities affiliated with him (i.e. Lera Ultimate Limited and Lera Infinity Limited), an aggregate of 239,750,000 Class B ordinary shares, representing (a) approximately 21.52% of our issued and outstanding Shares; (b) approximately 73.28% of the effective voting rights in our company with respect to shareholder resolutions relating to matters other than the Reserved Matters; and (c) approximately 21.52% with respect to shareholder resolutions relating to the Reserved Matters upon completion of the proposed Listing in Hong Kong.
Mr. Li holds his interests in our company through Lera Ultimate Limited and Lera Infinity Limited, which are ultimately owned by Lera Direction Plus Trust and Lera Target Trust, respectively. Each of Lera Direction Plus Trust and Lera Target Trust is a trust established by Mr. Li (as the settlor) for the benefit of his family and himself. Therefore, Mr. Li, Lera Ultimate Limited and Lera Infinity Limited together will constitute the Controlling Shareholders of our company after the Listing.
 
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Our Corporate Structure
The following diagram illustrates our corporate structure, including our significant subsidiaries and the VIEs as of the date of this prospectus supplement:
[MISSING IMAGE: fc_ourcorporate-bwlr.jpg]
Notes:
(1)
Mr. Leaf Hua Li and Ms. Lei Li hold 85% and 15% equity interests in Shenzhen Futu, respectively. Mr. Li is the founder, chairman and chief executive officer of our company and Ms. Li is Mr. Li’s spouse.
(2)
Each of Futu Holdings Limited, Futu Financial Limited, Futu Lending Limited, Futu Network Technology Limited and Futu Securities (Hong Kong) Limited owns 20% of the share capital in Futu Trustee Limited.
Recent Developments
Highlights for the Third Quarter of 2022

Total revenues increased 12.4% year-over-year to HK$1,945.6 million (US$247.9 million).

Total gross profit increased 18.0% year-over-year to HK$1,727.5 million (US$220.1 million).

Net income increased 22.7% year-over-year to HK$754.6 million (US$96.1 million).

Total number of paying clients increased 23.8% year-over-year to 1,444,955 as of September 30, 2022.

Total number of users increased 15.6% year-over-year to 19.2 million as of September 30, 2022.
Financial Results as of and for the Nine Months Ended September 30, 2022
The following sets forth a summary of our selected unaudited condensed consolidated financial data as of and for the nine months ended September 30, 2022. Our selected unaudited condensed consolidated statements of operations data as of and for the nine months ended September 30, 2022 may not be indicative of our financial results for future interim periods or for the full year ended December 31, 2022. This information should be read together with our unaudited interim condensed consolidated financial statements in Exhibit 99.2 titled “Unaudited interim condensed consolidated financial statements of Futu Holdings Limited as of and for the nine months ended September 30, 2022” to our current report on Form 6-K furnished
 
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to the SEC on December 22, 2022. The financial results as of and for the nine months ended September 30, 2022 include translations of financial data in Hong Kong dollars into U.S. dollars for the convenience of the reader. These translations were made at a rate of HK$7.8498 to US$1.00, the respective exchange rate on September 30, 2022 in the H.10 statistical release of The Board of Governors of the Federal Reserve Board.
Selected Unaudited Condensed Consolidated Statements of Operations Data for the Nine Months Ended September 30, 2022
The table below summarizes our results of operations for the periods indicated:
For the Nine months ended
September 30,
2021
2022
HK$
HK$
(in thousands)
US$
Total revenues
5,512,511 5,333,308 679,420
Total costs
(989,211) (653,962) (83,309)
Total gross profit
4,523,300 4,679,346 596,111
Total operating expenses
(1,900,940) (2,231,107) (284,225)
Income before income tax expenses and share of loss from equity method investment
2,612,669 2,229,064 283,965
Net income
2,311,401 1,968,168 250,729
Nine Months Ended September 30, 2022 Compared to Nine Months Ended September 30, 2021
Revenues
Our revenues decreased by 3.3% from HK$5,512.5 million in the nine months ended September 30, 2021 to HK$5,333.3 million (US$679.4 million) in the nine months ended September 30, 2022.

Brokerage commission and handling charge income.   Our brokerage commission and handling charge income decreased by 3.2% from HK$3,056.1 million in the nine months ended September 30, 2021 to HK$2,959.1 million (US$377.0 million) in the nine months ended September 30, 2022. The decrease was primarily due to a decline in trading volume compared to the same period in 2021 when market peaked, which was partially offset by an increase in the blended commission rate as applied based on trading volume from 6.2 basis points to 7.9 basis points.

Interest income.   Interest income increased by 9.3% from HK$1,900.6 million in the nine months ended September 30, 2021 to HK$2,076.5 million (US$264.6 million) in the nine months ended September 30, 2022. The increase was mainly driven by higher interest income from bank deposits amid rate hikes despite lower margin financing income and IPO financing interest income.

Other income.   Our other income decreased by 46.4% from HK$555.8 million in the nine months ended September 30, 2021 to HK$297.8 million (US$37.9 million) in the nine months ended September 30, 2022. The decrease was primarily due to lower IPO financing service charge income and underwriting fee income.
Costs
Our total costs decreased by 33.9% from HK$989.2 million in the nine months ended September 30, 2021 to HK$654.0 million (US$83.3 million) in the nine months ended September 30, 2022.
Operating expenses
Our total operating expenses increased by 17.4% from HK$1,900.9 million in the nine months ended September 30, 2021 to HK$2,231.1 million (US$284.2 million) in the nine months ended September 30, 2022. The increase was mainly driven by an increase in employee compensation and benefits from HK$785.2 million
 
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to HK$ 1,497.8 million, which was primarily due to (i) an increase in headcount for across various functions, and (ii) an increase in the number of RSUs granted to our employees under the 2019 Share Incentive Plan in 2022.
Net income and net income margin
We recorded net income of HK$1,968.2 million (US$250.7 million) and net income margin at 36.9% in the nine months ended September 30, 2022, compared to net income of HK$2,311.4 million and net income margin at 41.9% in the nine months ended September 30, 2021.
Impact of the COVID-19 Pandemic on Our Operations
The ongoing COVID-19 pandemic has disrupted the business operations of many companies globally. We have taken a series of measures in response to the outbreak to protect our employees. Our operations, including our services to our clients and internal control over financial reporting, have not been materially and adversely affected by these measures as we timely implemented our business continuity plan.
In July 2018, we were the first securities broker in Hong Kong to offer completely online-based account opening services, according to CIC, while many traditional financial institutions still utilize offline account opening and customer service models and had to suspend the operations at their physical branches as a result of the pandemic from time to time, which underscores the merits of a pure online one-stop financial technology platform where clients can enjoy an end-to-end mobile experience for everything from account opening to trade execution, margin lending, mutual fund investments, market news and social interaction.
We witnessed huge market volatility in the global capital markets in the past three years. Such volatility has led to new account sign-ups, increasing trading velocity and higher net asset inflow, which benefited our operating and financial results for these periods. In the second quarter of 2022, our total client assets increased by 12.3% quarter-over-quarter to HK$433.6 billion, primarily due to strong net asset inflow across regions. Our paying clients reached 1.44 million as of September 30, 2022, representing 38.6% year-over-year growth. Despite the increased market volatility, our rigorous risk management systems and procedures have prevented us from incurring any material losses in relation to margin financing business, and we had not identified any material COVID-19-related contingencies or impairments as of the date of this prospectus supplement. Our business operation and financial performance had not been materially and adversely affected by the COVID-19 pandemic up to the date of this prospectus supplement.
While we experienced business growth in 2020 and 2021, we cannot predict whether this will continue at the same level in the future and whether client behavior will continue in a manner that is favorable to us. The improvement in our business and financial performance in 2020, 2021 and the first half of 2022 may not be sustainable. As there is still uncertainty around the duration of the pandemic, we cannot ascertain the potential impact of the pandemic on investor sentiments and the possibility of other effects on our business. In the event that this epidemic cannot be effectively and timely contained, our ability to consistently offer new products and services in the future may be disrupted, which in turn may harm the growth rate and retention of our clients, as well as our financial performance generally. The near-term economic impact of the COVID-19 outbreak is also uncertain.
For more details, please refer to “Business — Health, Work Safety, Social Responsibility and Environmental Matters” and “Financial Information — Impact of COVID-19 on Our Operations” in Exhibit 99.1 to the Supplemental 6-K.
Regulatory Overview and Recent Regulatory Development
Regulatory Overview
As an online financial services platform, our licensed entities are subject to the laws and regulations of the relevant jurisdictions where they operate. Futu International Hong Kong is a SFC-licensed corporation subject to the SFO. Moomoo Financial Inc. and Futu Clearing Inc., as SEC-registered broker-dealers, are subject to the rules and regulations of the SEC and FINRA. Moomoo Financial Singapore, as a Capital Markets Services Licencee in Singapore, is subject to the rules and regulations by the MAS and other relevant
 
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regulatory authorities in Singapore. Futu Australia, which holds an Australian Financial Services License, is regulated by the Australian Securities and Investments Commission and subject to its rules and regulations. We do not engage in securities brokerage business in Mainland China and therefore we do not hold any license or permit for providing securities brokerage business in Mainland China.
Our licensed entities are subject to various regulatory requirements, including those specified in laws, regulations and guidelines issued by the competent regulatory authorities in Hong Kong, US, Singapore and Australia, including but not limited to the SFC, MAS, SEC, FINRA and the ASIC. Futu International Hong Kong is a licensed corporation under the SFO and may be subject to SFC inquiries and investigations from time to time. As of the date of this prospectus supplement, Futu International Hong Kong was involved in certain ongoing inquiries initiated by the SFC concerning matters including, among others, client onboarding processes, risk management, client assets, cybersecurity, anti-money laundering, counter-financing terrorism and operation of mobile application. In addition, Futu International Hong Kong was involved in an ongoing investigation concerning matters, including, among others, online account opening procedures and product due diligence. The SFC’s inquiries and investigation remain ongoing and are subject to statutory secrecy under Section 378 of the SFO. Therefore, no additional details about them can be disclosed in this document unless otherwise consented by the SFC. As the foregoing inquiries and investigation from the SFC remain ongoing, it is not possible for us to accurately predict if any disciplinary action will be taken against Futu International Hong Kong after the conclusion of the inquiries and investigation, if so, the nature and extent of any such action. If, after the SFC’s inquiries and investigation have been concluded, the SFC identifies misconduct or material non-compliance, the SFC can take various regulatory actions, which may include, among other things, reprimands, fines and/or suspension or revocation of licenses and trading rights and, if imposed, might materially and adversely affect our reputation, business, prospects and financial conditions. Our Group had not been subject to any enforcement or disciplinary actions initiated by the SEC as of the date of this prospectus supplement.
Key Regulatory Developments in China
Regulations relating to overseas listing
According to Article 6 of the Special Administrative Measures (Negative List) for Foreign Investment Access (2021 Version) (the “2021 Negative List”) which took effect on January 1, 2022, with respect to the securities offering and listing in an overseas market by a domestic company engaging in the fields prohibited by the 2021 Negative List, the consent of the relevant competent authorities of the State shall be obtained, and overseas investors shall not participate in the operation and management of the enterprise, and overseas investors’ shareholding percentage shall be subject to the relevant provisions on administration of domestic securities investment by overseas investors. On December 24, 2021, the CSRC issued the Provisions of the State Council on Administration of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (the “Draft Administration Provisions”), and the Administrative Measures for the Filing of Overseas Securities Offering and Listing by Domestic Companies (Draft for Comments) (the “Draft Filing Measures”), which were open for public comments until January 23, 2022. As of the date of this prospectus supplement, the Draft Administration Provisions and the Draft Filing Measures have not been formally adopted and the relevant PRC laws and regulations have not yet made clear provisions on whether regulatory opinions, record-filing or approval documents issued by the competent industry authorities are required to be obtained for the indirect overseas issuance and listing of securities by domestic companies through a VIE structure. It is also unclear how the CSRC will seek the opinions of competent industry authorities or relevant authorities in the record-filing process in case of companies involved in prohibited sectors under the 2021 Negative List. For details, see “Risk Factors — Risks Related to Our Presence in China — The approval of the CSRC or other PRC government authorities may be required in connection with the Listing under PRC law, and, if required, we cannot predict whether or for how long we will be able to obtain such approval” and “Contractual Arrangements — Developments in the PRC Legislation on Foreign Investment — Filings and Approvals from PRC Governmental Authorities” in Exhibit 99.1 to the Supplemental 6-K.
Regulations relating to Cybersecurity and Data Privacy
On June 10, 2021, the Standing Committee of the National People’s Congress promulgated the PRC Data Security Law, which took effect in September 2021. On August 20, 2021, the Standing Committee of the
 
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National People’s Congress promulgated the Personal Information Protection Law of the PRC, effective from November 1, 2021. On July 7, 2022, the CAC promulgated the Measures on Security Assessment of Cross-border Data Transfer which has become effective on September 1, 2022. Such data export measures requires that any data processor which processes or exports personal information exceeding certain volume threshold under such measures shall apply for security assessment by the CAC before transferring any personal information abroad. For details on CAC assessment of data transfer, see “Business — Regulatory Development — PRC Cybersecurity and Data Protection — Other applicable PRC data security and cybersecurity laws and regulations” and “Risk Factors — Risks Related to Our Business and Industry — Our operations and services involve collection, processing, and storage of significant amounts of data concerning our clients, business partners and employees and may be subject to complex and evolving laws and regulations regarding privacy and data protection and cybersecurity. If we fail to comply with the relevant laws and regulations, our business, results of operations and financial condition may be adversely affected” in Exhibit 99.1 to the Supplemental 6-K.
On July 30, 2021, the State Council promulgated the Regulations on Protection of Security of Critical Information Infrastructure, effective on September 1, 2021. On December 28, 2021, the CAC, the NDRC, the MIIT, and several other PRC regulatory authorities jointly issued the Cybersecurity Review Measures which became effective on February 15, 2022. Pursuant to the Cybersecurity Review Measures, critical information infrastructure operators that procure internet products and services, and network platform operators engaging in data processing activities, must be subject to the cybersecurity review if their activities affect or may affect national security. The Cybersecurity Review Measures further stipulate that network platform operators holding over one million users’ personal information shall apply with the Cybersecurity Review Office for a cybersecurity review before listing in a foreign country. Furthermore, on November 14, 2021, the CAC published the Regulations on Network Data Security Management (Draft for Comment), or the Draft Regulations on Network Data, which reiterate the circumstances under which data processors shall apply for cybersecurity review. However, it provides no further explanation or interpretation as to how to determine what “may affect national security,” and there remain uncertainties whether we would be subject to the cybersecurity review for this Listing pursuant to such measures. For more details on cybersecurity review, see “Business — Regulatory Development — PRC Cybersecurity and Data Protection” and “Risk Factors — Risks Related to Our Business and Industry — Our operations and services involve collection, processing, and storage of significant amounts of data concerning our clients, business partners and employees and may be subject to complex and evolving laws and regulations regarding privacy and data protection and cybersecurity. If we fail to comply with the relevant laws and regulations, our business, results of operations and financial condition may be adversely affected” in Exhibit 99.1 to the Supplemental 6-K.
On March 12, 2021, the CAC, the MIIT, the MPS and the SAMR collectively promulgated the Rules on the Scope of Necessary Personal Information for Common Types of Mobile Internet Applications, which came into effect on May 1, 2021. Furthermore, the CAC promulgated the Administrative Provisions on Mobile Internet Application Information Services, or the Mobile Application Administrative Provisions, and further revised it on June 14, 2022, which became effective on August 1, 2022. Pursuant to the Mobile Application Administrative Provisions, mobile internet app providers refer to the owners or operators of mobile internet apps. For more details, please see “Regulatory Overview — Overview of the Laws and Regulations Relating to Our Presence in China — Regulations on Cybersecurity and Privacy — Regulations on Privacy Protection” in Exhibit 99.1 to the Supplemental 6-K.
Implication of the Holding Foreign Companies Accountable Act
On December 18, 2020, the Holding Foreign Companies Accountable Act, or HFCAA, was enacted. Under the HFCAA, the SEC will prohibit our securities from being listed on U.S. securities exchanges or traded “over-the-counter” if we have filed audit reports issued by a registered public accounting firm that has not been subject to inspection by the PCAOB for three consecutive years beginning in 2021 or any year thereafter. Our auditor is located in China, a jurisdiction where the PCAOB was unable to conduct inspections and investigations before 2022. The related risks and uncertainties could cause the value of the ADSs representing our Class A ordinary shares to significantly decline or be worthless.
On April 21, 2022, the SEC conclusively listed us as a Commission-Identified Issuer under the HFCAA following the filing of our annual report on Form 20-F for the fiscal year ended December 31, 2021. In
 
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accordance with the HFCAA, our securities will be prohibited from being traded on a national securities exchange or in the over-the-counter trading market in the United States if the PCAOB is unable to inspect or investigate completely PCAOB-registered public accounting firms headquartered in China for three consecutive years, or for two consecutive years if proposed changes to the law are enacted. As a result, the Nasdaq may decide to delist our securities. On August 26, 2022, the PCAOB signed a Statement of Protocol with the China Securities Regulatory Commission and the Ministry of Finance of China, the Chinese authorities governing inspections and investigations of audit firms based in China, which marks taking the first step toward providing opening access for the PCAOB to inspect and investigate registered public accounting firms headquartered in Mainland China and Hong Kong. On December 15, 2022, the PCAOB announced that it was able to secure complete access to inspect and investigate PCAOB-registered public accounting firms headquartered in Mainland China and Hong Kong in 2022. The PCAOB vacated its previous 2021 determinations that the PCAOB was unable to inspect or investigate completely registered public accounting firms headquartered in Mainland China and Hong Kong. For this reason, we do not expect to be identified as a Commission-Identified Issuer following the filing of our annual report for the fiscal year ending December 31, 2022. However, whether the PCAOB will continue to be able to satisfactorily conduct inspections of PCAOB-registered public accounting firms headquartered in Mainland China and Hong Kong is subject to uncertainty and depends on a number of factors out of our, and our auditor’s, control. The PCAOB is continuing to demand complete access in Mainland China and Hong Kong moving forward and is already making plans to resume regular inspections in early 2023 and beyond, as well as to continue pursuing ongoing investigations and initiate new investigations as needed. The HCFAA or other efforts to increase U.S. regulatory access to audit information could cause investor uncertainty for affected issuers, including us, and the market price of the ADSs could be adversely affected. On June 22, 2021, the U.S. Senate passed a bill which would reduce the number of consecutive non-inspection years required for triggering the prohibitions under the HFCAA from three years to two. On February 4, 2022, the U.S. House of Representatives passed a bill which contained, among other things, an identical provision. On December 20, 2022, the Chair of the U.S. House Appropriations Committee joined the Chair of the U.S. Senate Appropriations Committee in releasing proposed legislation entitled “Consolidated Appropriations Act, 2023”, which also contains such provision. This proposed legislation, a product of bipartisan negotiations, was first approved in the U.S. Senate on December 22, 2022, and is expected to be considered for approval then in the U.S. House of Representatives on or before December 23, 2022. If this proposed legislation is approved by the U.S. Congress and signed into law by President Biden in its current form, and the number of consecutive non-inspection years required from triggering the prohibitions under the HFCAA is reduced from three years to two, then our shares and the ADSs could be prohibited from trading in the United States in a shorter period in the event that we become identified as a Commission-Identified Issuer.
If our shares and the ADSs are prohibited from trading in the United States in the future, such a prohibition would substantially impair the ability of our investors to sell or purchase the ADSs when they wish to do so, and the risk and uncertainty associated with delisting would have a negative impact on the price of our Class A ordinary shares or the ADSs. For more details, see “Risk Factors — Risks Related to Our Presence in China — The audit report included in SEC filings had historically been prepared by an auditor who was not inspected by the Public Company Accounting Oversight Board and, as such, our investors have been deprived of the benefits of such inspection” and “Risk Factors — Risks Related to Our Presence in China — The ADSs could be delisted from the Nasdaq Global Market and prohibited from trading “over the counter” if the Public Company Accounting Oversight Board is unable to inspect auditors located in China. The delisting of the ADSs from the Nasdaq Global Market and inability to trade, or the threat thereof, may materially and adversely affect the value of your investment” in Exhibit 99.1 to the Supplemental 6-K. Our Directors are of the view that the HFCAA and the potential prohibition of trading in the United States do not have any material adverse impact on our business operations, financial performance, or the Listing, as our securities will continue to be traded on the Hong Kong Stock Exchange even if the prohibition of trading were to take place.
Holding Company Structure and the VIE Contractual Arrangements
Futu Holdings Limited is a holding company with no material operations of its own. We conduct our operations primarily through our subsidiaries in Hong Kong, Singapore, the U.S., Australia and the PRC, and the VIEs and their subsidiaries in China. As a result, Futu Holdings Limited’s ability to pay dividends depends upon dividends paid by our subsidiaries in Hong Kong, Singapore, the U.S., Australia and the PRC. If our
 
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existing subsidiaries or any newly formed ones in Hong Kong, Singapore, the U.S., Australia and the PRC incur debt on their own behalf in the future, the instruments governing their debt may restrict their ability to pay dividends to us. In addition, our wholly foreign-owned subsidiaries in China are permitted to pay dividends to us only out of its retained earnings, if any, as determined in accordance with PRC accounting standards and regulations. Our PRC subsidiaries have not paid dividends and will not be able to pay dividends until they generate accumulated profits and meet the requirements for statutory reserve funds. As used in this prospectus supplement, “Futu,” “we,” “us,” “our company,” or “our” refer to Futu Holdings and its subsidiaries and, in the context of describing our operations and consolidated financial information, also include the VIEs and their subsidiaries, unless the context otherwise requires.
Although the vast majority of our business is conducted in Hong Kong, we depend on the VIEs to conduct a limited part of our operations in China pursuant to a series of contractual arrangements. For a description of these contractual arrangements, see “Contractual Arrangements” in Exhibit 99.1 to the Supplemental 6-K. These contractual arrangements may not be as effective as direct ownership in providing us with control over the VIEs. If any VIE or its shareholders fail to perform their respective obligations under these contractual arrangements, our recourse to the assets held by such VIE is indirect and we may have to incur substantial costs and expend significant resources to enforce such arrangements in reliance on legal remedies under PRC law. These remedies may not always be effective, particularly in light of uncertainties in the PRC legal system. Furthermore, in connection with litigation, arbitration or other judicial or dispute resolution proceedings, assets under the name of any of record holder of equity interest in the VIE, including such equity interest, may be put under court custody. As a consequence, we cannot be certain that the equity interest will be disposed pursuant to the contractual arrangement or ownership by the record holder of the equity interest.
All of these contractual arrangements are governed by and interpreted in accordance with PRC law, and disputes arising from these contractual arrangements will be resolved through arbitration in China. However, such arbitration provisions do not apply to claims made under the United States federal securities laws. The legal environment in the PRC is not as developed as in other jurisdictions, such as the United States. As a result, uncertainties in the PRC legal system could limit our ability to enforce these contractual arrangements. In the event that we are unable to enforce these contractual arrangements, or if we suffer significant time delays or other obstacles in the process of enforcing these contractual arrangements, it would be very difficult to exert effective control over the VIEs. Historically, such operations constituted an immaterial portion of our consolidated total revenues and total assets. In 2019, 2020 and 2021, we generated 0.2%, 0.3% and 0.3% of our total revenues through the VIEs in China, respectively, whose assets accounted for 0.1%, 0.1% and 0.1% of our total assets during the same years, respectively. We currently expect the VIEs and their subsidiaries to constitute an immaterial portion of our financial position, results of operations and cash flows for the foreseeable future. However, if we lose operational control over the VIE, our financial condition and results of operations may be materially and adversely affected. See “Risk Factors — Risks Related to Our Presence in China — There are uncertainties regarding the interpretation and enforcement of PRC laws, rules and regulations” and “Contractual Arrangements” in Exhibit 99.1 to the Supplemental 6-K.
Transfer of Cash Through Our Organization
Although we consolidate the results of the VIEs and their subsidiaries under U.S. GAAP, we only have access to the assets or earnings of the VIEs and their subsidiaries through our contractual arrangements with the VIEs and their shareholders. The cash flows that have occurred between Shenzhen and Futu Holdings and its subsidiaries for the periods indicated are summarized as follows:
 
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For the year ended December 31,
2019
2020
2021
HK$
HK$
HK$
US$
(in thousands)
Cash paid by subsidiaries to the VIE(1) for technical service fee
37,631 33,669 189,827 24,423
Advances from subsidiaries to the VIE(1)
32,740
Repayment of advances to Group companies by the VIE(1)
(32,740)
Notes:
(1)
VIE refers to Shenzhen Futu. For the relevant periods indicated, Hainan VIE did not conduct substantial business.
Restrictions and Limitations on Transfer of Cash
We face various restrictions and limitations on foreign exchanges foreign exchange, our ability to transfer cash between entities, across borders and to U.S. investors, and our ability to distribute earnings from our subsidiaries and/or the VIEs and their subsidiaries, to Futu Holdings and holders of the ADSs as well as the ability to settle amounts owed under the contractual arrangements with the VIEs.
Uncertainties regarding the interpretation and implementation of the contractual arrangements with the VIEs could limit our ability to enforce such agreements. If the PRC authorities determine that the contractual arrangements constituting part of the VIE structure do not comply with PRC regulations, or if current regulations change or are interpreted differently in the future, our ability to settle amount owed by the VIEs under the VIE agreements may be seriously hindered. For more information with respect to restrictions and limitations on transfer of cash and the related risk, please see “Explanatory Note”, See “Item 3. Key Information — D. Risk Factors — Risks Relating to Our Operations in China” in our 2021 Form 20-F and “Risk Factors — Risks Related to Our Presence in China” in Exhibit 99.1 to the Supplemental 6-K.
Current PRC regulations permit our PRC subsidiaries, including the WFOE, to pay dividends to us only out of their accumulated profits, if any, determined in accordance with PRC accounting standards and regulations. In addition, each of our PRC subsidiaries, the VIEs and its PRC subsidiaries are required to set aside at least 10% of their respective accumulated profits each year, if any, to fund certain reserve funds until the total amount set aside reaches 50% of their respective registered capital. Our PRC subsidiaries and the VIEs and its subsidiaries may also allocate a portion of their after-tax profits based on PRC accounting standards to employee welfare and bonus funds at their discretion. These reserves are not distributable as cash dividends. Furthermore, if the WFOE incurs debt on its own behalf in the future, the instruments governing the debt may restrict its ability to pay dividends or make other payments to us. In addition, the PRC tax authorities may require us to adjust our taxable income under the contractual arrangements we currently have in place in a manner that would materially and adversely affect the WFOE’s ability to pay dividends and other distributions to us. Any limitation on the ability of our PRC subsidiaries, including the WFOE, to distribute dividends to us or on the ability of the VIEs to make payments to the WFOE may restrict our ability to satisfy our liquidity requirements. See “Item 4. Information on the Company — B. Business Overview — Regulation — Overview of the Laws and Regulations Relating to Our Business and Operations in China — Regulations on Dividend Distribution” in our 2021 Form 20-F.
Our offshore entities are permitted under PRC laws and regulations to provide funding to our PRC subsidiaries only through loans or capital contributions, subject to the approval of government authorities and limits on the amount of capital contributions and loans. This may delay or prevent us from using the proceeds from our offshore capital raising activities to make loans or capital contribution to our PRC subsidiaries. See “Item 3. Key Information — D. Risk Factors — Risks Relating to Our Operations in China — PRC regulation of loans to and direct investment in PRC entities by offshore holding companies and governmental control of currency conversion may delay or prevent us from using the proceeds of our securities offerings to make loans or additional capital contributions to our PRC subsidiaries and the VIE and its subsidiaries” in our 2021 Form 20-F.
Additionally, PRC government imposes controls on the convertibility of the RMB into foreign currencies and, in certain cases, the remittance of currency out of China. Under existing PRC foreign exchange
 
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regulations, payments of current account items, such as profit distributions and trade and service-related foreign exchange transactions, can be made in foreign currencies without prior approval from the State Administration of Foreign Exchange of the PRC, or the SAFE by complying with certain procedural requirements. Dividends payments to us by Futu Hong Kong in foreign currencies are subject to the condition that the remittance of such dividends outside of the PRC complies with certain procedures under PRC foreign exchange regulations, such as the overseas investment registrations by our shareholders or the ultimate shareholders of our corporate shareholders who are PRC residents. Approvals by or registration with appropriate government authorities is required where RMB is to be converted into foreign currency and remitted out of China to pay capital expenses such as the repayment of loans denominated in foreign currencies. The PRC government may also at its discretion restrict access in the future to foreign currencies for current account transactions. If the foreign exchange control system prevents us from obtaining sufficient foreign currencies to satisfy our foreign currency demands, our PRC subsidiaries, including the WFOE, may not be able to pay dividends in foreign currencies to us and our access to cash generated from its operations will be restricted. See “Item 3.D. Key Information — Risk Factors — Risks Related to Our Business and Industry — We are subject to PRC restrictions on currency exchange” in our 2021 Form 20-F.
Taxation on Dividends or Distributions
Futu Holdings’ source of dividend partly comes from dividends paid by its PRC subsidiaries, including the WFOE, which in part depends on payments received from the VIEs under the contractual arrangements with the VIEs. None of our subsidiaries has declared or paid any dividend or distribution to us. We have never declared or paid any dividend on our ordinary shares and we have no current intention to pay dividends to shareholders or holders of ADSs. We currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth of our business. The undistributed earnings that are subject to dividend tax are expected to be indefinitely reinvested for the foreseeable future. Under the current laws of the Cayman Islands, Futu Holdings is not subject to tax on income or capital gains. Upon payments of dividends to our shareholders, no Cayman Islands withholding tax will be imposed. For purposes of illustration, the following discussion reflects the hypothetical taxes that might be required to be paid in Mainland China and Hong Kong, assuming that: (i) we have taxable earnings in the VIEs, and (ii) we determine to pay a dividend in the future:
Hypothetical pre-tax earnings in the VIEs(1)
100.00
Tax on earnings at statutory rate of 25% at WFOE level(2)
(25.00)
Amount to be distributed as dividend from WFOE to Futu Hong Kong(3)
75.00
Withholding tax at tax treaty rate of 5%
(3.75)
Amount to be distributed as dividend at Futu Hong Kong level and net distribution to Futu Holdings Limited(4)
71.25
Notes:
(1)
For purposes of this example, the tax calculation has been simplified. The hypothetical book pre-tax earnings amount is assumed to equal Chinese taxable income.
(2)
Certain of our subsidiaries and the VIEs qualifies for a 15% preferential income tax rate in China. However, such rate is subject to qualification, is temporary in nature, and may not be available in a future period when distributions are paid. For purposes of this hypothetical example, the table above reflects a maximum tax scenario under which the full statutory rate would be effective.
(3)
China’s Enterprise Income Tax Law imposes a withholding income tax of 10% on dividends distributed by a Foreign Invested Enterprise to its immediate holding company outside of Mainland China. A lower withholding income tax rate of 5% is applied if the Foreign Invested Enterprise’s immediate holding company is registered in Hong Kong or other jurisdictions that have a tax treaty arrangement with Mainland China, subject to a qualification review at the time of the distribution. There is no incremental tax at Futu Hong Kong level for any dividend distribution to Futu Holdings.
(4)
If a 10% withholding income tax rate is imposed, the withholding tax will be 7.5 and the amount to be distributed as dividend at Futu Hong Kong level and net distribution to Futu Holdings will be 67.5.
The table above has been prepared under the assumption that all profits of the VIEs will be distributed as fees to our PRC subsidiaries under tax neutral contractual arrangements. If, in the future, the accumulated earnings of the VIEs exceed the service fees paid to our PRC subsidiaries (or if the current and contemplated fee structure between the intercompany entities is determined to be non-substantive and disallowed by Chinese
 
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tax authorities), the VIEs could make a non-deductible transfer to our PRC subsidiaries for the amounts of the stranded cash in the VIEs. This would result in such transfer being non-deductible expenses for the VIEs but still taxable income for the PRC subsidiaries. Our management believes that there is only a remote possibility that this scenario would happen.
Should all tax planning strategies fail the VIEs could, as a matter of last resort, make a non-deductible transfer to the WFOE for amounts of stranded cash in the VIEs. This would result in the double taxation of earnings: once at the VIE level (non-deductible expense) and again at the WFOE level (for presumptive earnings on the transfer). This has the impact of reducing the amount available above from 71.25% to approximately 53% of pre-tax income, respectively. Management believes this scenario to be remote.
Disaggregated Financial Information Related to the VIEs
Historically, Shenzhen Futu and their subsidiaries accounted for a small portion of our financial position, results of operations and cash flows. Set forth below are the condensed consolidating schedule showing the financial position as of December 31, 2020 and 2021, and results of operations and cash flows for the years ended December 31, 2019, 2020 and 2021 for (i) Futu Holdings, or the Parent; (ii) the WFOE (which is the primary beneficiary of the VIE, being Shenzhen Futu); (iii) our other subsidiaries (excluding the WFOE); (iv) VIE, being Shenzhen Futu and their subsidiaries; (v) eliminating adjustments; and (vi) consolidated totals. For the relevant periods indicated, Hainan VIE did not conduct substantial business.
 
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As of December 31, 2020
As of December 31, 2021
Parent
Other
Subsidiaries
WFOE
VIE and
VIE’s
subsidiaries
Eliminating
Adjustments
Consolidated
Totals
Parent
Other
Subsidiaries
WFOE
VIE and
VIE’s
subsidiaries
Eliminating
Adjustments
Consolidated
Totals
HK$(in thousands)
HK$(in thousands)
Condensed Consolidating Schedule of Financial Position
Assets
Cash and cash equivalents
37,349 993,561 20 3,738 1,034,668 37,574 4,514,736 35 2,751 4,555,096
Cash held on behalf of clients
42,487,090 42,487,090 54,734,351 54,734,351
Restricted cash
2,065 2,065
Term deposit
300,000 300,000
Short-term investments
1,169,741 1,169,741
Amounts due from internal companies(1)
4,184,401 30,525 2,043 117,085 (4,334,054) 6,969,446 46,296 2,102 190,424 (7,208,268)
Loans and advances
18,825,366 18,825,366 29,587,306 29,587,306
Securities purchased under agreements to resell
106,203 106,203
Receivables
8,077,032 8,077,032 10,447,794 10,447,794
Prepaid assets
9,502 1,920 11,422 11,366 6,940 18,306
Investment in subsidiaries(2)
5,086,681 19,089 (5,105,770) 13,514,216 80,292 (13,594,508)
Investment in VIE(2)
17,204 (17,204) 78,398 (78,398)
Long-term investments
23,394 23,394
Operating lease right-of-use assets
176,963 31,900 208,863 210,887 40,415 (7,443) 243,859
Other assets
9,655 375,417 8,254 393,326 21,620 614,707 14,072 650,399
Total assets
9,318,086 71,294,545 19,267 162,897 (9,457,028) 71,337,767 21,712,597 100,379,397 80,535 254,602 (20,888,617) 101,538,514
Liabilities
Amounts due to related parties
87,169 87,169 87,459 87,459
Amounts due to internal companies(1)
15,833 4,245,538 177 72,506 (4,334,054) 21,955 7,105,635 243 80,435 (7,208,268)
Securities sold under agreements to
repurchase
5,453,037 5,453,037 4,467,861 4,467,861
Payables
695 51,052,929 51,053,624 131 67,192,372 67,192,503
Borrowings
977,735 4,505,083 5,482,818 689,869 5,667,536 6,357,405
Lease liabilities
189,646 32,585 222,231 217,694 42,628 257 260,579
Accrued expenses and other liabilities
16,133 674,463 40,602 731,198 15,083 2,129,186 53,141 (10,262) 2,187,148
Total liabilities
1,010,396 66,207,865 177 145,693 (4,334,054) 63,030,077 727,038 86,867,743 243 176,204 (7,218,273) 80,552,955
Total shareholders’ equity(2)
8,307,690 5,086,680 19,090 17,204 (5,122,974) 8,307,690 20,985,559 13,511,654 80,292 78,398 (13,670,344) 20,985,559
 
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For the year ended December 31, 2019
For the year ended December 31, 2020
For the year ended December 31, 2021
Parent
Other
Subsidiaries
WFOE
VIE and
VIE’s
subsidiaries
Eliminating
Adjustments
Consolidated
Totals
Parent
Other
Subsidiaries
WFOE
VIE and
VIE’s
subsidiaries
Eliminating
Adjustments
Consolidated
Totals
Parent
Other
Subsidiaries
WFOE
VIE and
VIE’s
subsidiaries
Eliminating
Adjustments
Consolidated
Totals
HK$(in thousands)
HK$(in thousands)
HK$(in thousands)
Condensed Consolidating Schedule of Results of Operations
Third-party revenues
1,240 1,058,376 1,939 1,061,555 3,189 3,298,700 8,933 3,310,822 2,766 7,090,167 22,387 7,115,320
Inter-company
revenues(3)
63,742 (63,742) 94,500 (94,500) 187,774 (187,774)
Total costs(3)
(3,930) (332,321) (9,195) 63,742 (281,704) (191) (777,589) (12,674) 94,500 (695,954) (1,382,062) (11,776) 187,774 (1,206,064)
Total expenses
(22,529) (519,967) (1) (49,399) (591,896) (23,388) (1,051,012) (53) (72,554) (1,147,007) (26,854) (2,558,736) (46) (140,807) (2,726,443)
Equity in gain of subsidiaries/ VIE(2)
192,322 8,806 8,807 (209,935) 1,347,485 21,088 20,727 (1,389,300) 2,816,673 52,695 52,741 (2,922,109)
Others, net
(1,439) (7,014) (1,009) (9,462) (1,572) (17,955) 413 1,876 (17,238) 17,625 (14,841) (306) 2,478
Income before income tax expenses
165,664 207,880 8,806 6,078 (209,935) 178,493 1,325,523 1,473,232 21,087 20,081 (1,389,300) 1,450,623 2,810,210 3,187,223 52,695 57,272 (2,922,109) 3,185,291
Share of loss from equity
method investments
(543) (543) (307) (307)
Income tax expense
(15,015) 2,729 (12,286) (125,439) 646 (124,793) (370,550) (4,531) (375,081)
Net income
165,664 192,322 8,806 8,807 (209,935) 165,664 1,325,523 1,347,486 21,087 20,727 (1,389,300) 1,325,523 2,810,210 2,816,673 52,695 52,741 (2,922,109) 2,810,210
For the year ended December 31, 2019
For the year ended December 31, 2020
For the year ended December 31, 2021
Parent
Other
Subsidiaries
WFOE
VIE and
VIE’s
subsidiaries
Eliminating
Adjustments
Consolidated
Totals
Parent
Other
Subsidiaries
WFOE
VIE and
VIE’s
subsidiaries
Eliminating
Adjustments
Consolidated
Totals
Parent
Other
Subsidiaries
WFOE
VIE and
VIE’s
subsidiaries
Eliminating
Adjustments
Consolidated
Totals
HK$(in thousands)
HK$(in thousands)
HK$(in thousands)
Condensed
Consolidating
Schedules of Cash
Flows
Net cash (used
in) /generated from
operating
activities(4)
(10,336) 1,982,273 (1) (2,502) 1,969,434 (30,551) 20,502,112 3 (14,847) 20,456,717 (16,465) 6,026,081 15 2,340 6,011,971
Advances to Group
companies
(939,807) (32,740) 972,547 (3,049,229) 3,049,229 (4,814,377) 4,814,377
Receival of advances
repayment from
Group
companies
313,091 32,740 (345,831) 779,604 (779,604) 2,039,648 (2,039,648)
Investments in subsidiaries, VIE and VIE’s subsidiary
(223,982) 223,982 (1,869,682) 1,869,682 (5,480,918) 5,480,918
Other investing activities
(162,290) 2,233 (160,057) (261,279) 17,104 (244,175) (1,169,715) 209,477 (3,327) (963,565)
Net cash (used
in)/generated from
investing
activities
(850,698) (162,290) 2,233 850,698 (160,057) (4,139,307) (261,279) 17,104 4,139,307 (244,175) (9,425,362) 209,477 (3,327) 8,255,647 (963,565)
 
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For the year ended December 31, 2019
For the year ended December 31, 2020
For the year ended December 31, 2021
Parent
Other
Subsidiaries
WFOE
VIE and
VIE’s
subsidiaries
Eliminating
Adjustments
Consolidated
Totals
Parent
Other
Subsidiaries
WFOE
VIE and
VIE’s
subsidiaries
Eliminating
Adjustments
Consolidated
Totals
Parent
Other
Subsidiaries
WFOE
VIE and
VIE’s
subsidiaries
Eliminating
Adjustments
Consolidated
Totals
HK$(in thousands)
HK$(in thousands)
HK$(in thousands)
Proceeds from advances from Group companies(5)
939,807 32,740 (972,547) 3,049,229 (3,049,229) 4,814,377 (4,814,377)
Repayment of advances from Group companies(5)
(313,091) (32,740) 345,831 (779,604) 779,604 (2,039,648) 2,039,648
Proceeds from issuance of ordinary shares
1,259,317 1,259,317 2,339,718 2,339,718 10,856,524 10,856,524
Capital contribution
from Group
companies
223,982 (223,982) 1,869,682 (1,869,682) 5,480,918 (5,480,918)
Other financing activities
(399,031) 291,336 (107,695) 1,859,532 4,207,646 6,067,178 (1,414,672) 1,112,366 (302,306)
Net cash generated from/(used in) financing
activities
860,286 1,142,034 (850,698) 1,151,622 4,199,250 8,346,953 (4,139,307) 8,406,896 9,441,852 9,368,013 (8,255,647) 10,554,218
Effect of exchange rate changes on cash, cash equivalents and restricted cash
(41) (44,625) (44,666) (33) (1,084) (1,117) 200 166,930 167,130
Net (decrease)/ increase in cash, cash equivalents and restricted
cash
(789) 2,917,392 (1) (269) 2,916,333 29,359 28,586,702 3 2,257 28,618,321 225 15,770,501 15 (987) 15,769,754
Cash, cash equivalents and restricted cash at beginning of the year
8,779 11,976,557 18 1,750 11,987,104 7,990 14,893,949 17 1,481 14,903,437 37,349 43,480,651 20 3,738 43,521,758
Cash, cash equivalents and restricted cash at end of the year
7,990 14,893,949 17 1,481 14,903,437 37,349 43,480,651 20 3,738 43,521,758 37,574 59,251,152 35 2,751 59,291,512
 
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Notes:
(1)
It represents the elimination of intercompany balances among parent, Shenzhen Futu and our subsidiaries.
(2)
It represents the elimination of the investment in Shenzhen Futu and our subsidiaries by the Parent.
(3)
Intercompany Revenues between Shenzhen Futu and Other Subsidiaries
The VIE provides software development services and technical consulting services to the subsidiaries of the Group. For the years ended December 31, 2019, 2020 and 2021, technical service fees of the VIE were HK$63,742 thousand, HK$94,500 thousand and HK$187,774 thousand, respectively. The intercompany service charge is eliminated at the consolidation level.
Intercompany Revenues between Shenzhen Futu and WFOE
Pursuant to the exclusive technology consulting and services agreement entered into in October 2014, between the WFOE and the VIE, which was subsequently amended and restated in May 2015 and further in September 2018, the WFOE had the exclusive right to provide the VIE with consulting and services related to, among other things, technology research and development, as well as maintenance of software and hardware. The VIE agreed to pay WFOE a service fee in an amount equal to its annual net income. The WFOE may adjust the amount of service fee based on factors such as the complexity, time spent and the commercial value of the services.
On September 30, 2021, a termination agreement was entered into among the WFOE, the VIE and its shareholders, pursuant to which the parties agreed to terminate the prior contractual arrangements and replaced them with a new set of agreements. Pursuant to the exclusive business cooperation agreement entered into on September 30, 2021 by and among the WFOE, the VIE and its shareholders, the VIE engages the WFOE as the exclusive service provider of technical support, consulting services and other services to the VIE. The VIE agrees to pay a service fee at an amount equivalent to 100% of the consolidated gross profits of the VIE for any fiscal year after offsetting the accumulated losses of the VIE and its subsidiaries in the previous fiscal years (if any) and after deducting working capital, expenditure, taxes and other statutory contributions required in any fiscal year.
For the years ended December 31, 2019, 2020 and 2021, the WFOE did not charge any service fee from the VIE.
(4)
For the years ended December 31, 2019, 2020 and 2021, cash paid by subsidiaries to Shenzhen Futu for technical service fees were HK$37,631 thousand, HK$33,669 thousand and HK$189,827 thousand, respectively.
(5)
For the year ended December 31, 2019, a subsidiary paid operating expense of HK$32,740 thousand on behalf of Shenzhen Futu, and Shenzhen Futu repaid the advance from the subsidiary subsequently.
Permissions Required from the PRC Authorities for Our Operations
We conduct our operations primarily through our subsidiaries in Hong Kong, Singapore, the U.S., Australia and the PRC, and the VIEs and their subsidiaries in China. Our operations in China are governed by PRC laws and regulations. In addition to the Business License issued by the relevant department of the State Administration for Market Regulation for each of our PRC subsidiaries, the VIEs and their subsidiaries, the relevant PRC subsidiaries and the VIEs are required to obtain, and have obtained the following requisite material permissions for their applicable main operations: Valued-added Telecommunication Business Operation License, or the ICP License, Radio and Television Program Production, Operation License and an Internet Culture Operation License and Publication Operation License.
As the regulatory regime for the online financial service provider and related industries in China and other jurisdictions in which we operate continues to evolve, new laws, regulations and regulatory requirements are promulgated and implemented from time to time, and the interpretation and application of existing laws, regulations and regulatory requirements are subject to changes. We may be required to obtain approvals, licenses, permits and certifications that we do not currently have for our existing business or new scope of business that we may expand into in the future. See “Risk Factors — Risks Related to Our Business and Industry — We do not hold any license or permit for providing securities brokerage business in Mainland China. Although we do not believe we engage in securities brokerage business in Mainland China, there remain uncertainties as to the interpretation and implementation of relevant PRC laws and regulations or if any new PRC laws and regulations will be enacted to impose licensing requirements on us with respect to our activities in Mainland China and/or our provision of services to our PRC-based clients. If some of our activities in Mainland China were deemed by relevant regulators as provision of securities business such as securities brokerage services, investment consulting services, futures business and/or any other regulated services and business activities in Mainland China, our business, financial condition, results of operations and prospects may be materially and adversely affected in Exhibit 99.1 to the Supplemental 6-K for more details.
Furthermore, in connection with our issuance of securities to foreign investors, as of the date of this prospectus supplement, we, our PRC subsidiaries and the VIEs are not required to obtain any approval or permission from the CSRC, CAC or any other PRC governmental authorities, nor have we, our PRC
 
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subsidiaries and the VIEs received any formal inquiry, notice, warning or sanction from any PRC governmental authorities in connection with requirements of obtaining such approval or permission, under any currently effective PRC laws, regulations and regulatory rules. However, the PRC government authorities have been tightening their oversight and control over listings and offerings conducted overseas by Chinese companies and investment in overseas-listed China-based companies like us, and published a series of proposed rules for public comments in this regard, the enaction timetable, final content, interpretation and implementation of which remain uncertain. Therefore, there are substantial uncertainties as to how PRC governmental authorities will regulate overseas listing in general and whether we are required to complete filing or obtain any specific regulatory approvals from the CSRC, CAC or any other PRC governmental authorities for our future offshore offerings. If we had inadvertently concluded that such approvals were not required, or if applicable laws, regulations or interpretations change in a way that requires us to obtain such approval in the future, we may be unable to obtain such necessary approvals in a timely manner, or at all, and such approvals may be rescinded even if obtained. Any such circumstance could subject us to penalties, including fines, suspension of business and revocation of required licenses, significantly limit or completely hinder our ability to continue to offer securities to investors and cause the value of such securities to significantly decline or be worthless. For more details, see “Item 3. Key Information — D. Risk Factors — Risks Related to Doing Business in China — The approval, filing or other requirements of the CSRC, the CAC or other PRC government authorities may be required under PRC law in connection with our issuance of securities overseas” in our 2021 Form 20-F, and “Risk Factors — Risks Related to Our Presence in China — The approval of the CSRC or other PRC government authorities may be required in connection with the Listing under PRC law, and, if required, we cannot predict whether or for how long we will be able to obtain such approval” in Exhibit 99.1 to the Supplemental 6-K.
For permissions required for our operations in Hong Kong, Singapore, the U.S., Australia and other overseas markets, please refer to “Regulatory Overview” in Exhibit 99.1 to the Supplemental 6-K.
Listings
On March 8, 2019, we listed the ADSs on the Nasdaq Global Market, or Nasdaq, under the symbol “FUTU.” We have applied for a listing of our Class A ordinary shares by way of introduction on the Main Board of the Hong Kong Stock Exchange, under Chapter 7 (Equity Securities) as well as Chapter 8A (Weighted Voting Rights) of the Hong Kong Listing Rules. Dealings in our Class A ordinary shares on the Hong Kong Stock Exchange will be conducted in Hong Kong dollars. Our Class A ordinary shares will be traded on the Hong Kong Stock Exchange in board lots of 100 Class A ordinary shares.
Fungibility and Exchanges Between ADSs and Class A Ordinary Shares
In connection with the Listing, and to facilitate fungibility and exchanges between ADSs and Class A ordinary shares and trading between Nasdaq and the Hong Kong Stock Exchange, we intend to move a portion of our issued Class A ordinary shares from our Cayman share register to our Hong Kong Share Registrar. Holders of Class A ordinary shares registered on the Hong Kong share register will be able to exchange these Class A ordinary shares into ADSs, and vice versa.
Implications of Being A Foreign Private Issuer
We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers. Moreover, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. In addition, as a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the Nasdaq corporate governance listing standards. These practices may afford less protection to shareholders than they would enjoy if we complied fully with the Nasdaq corporate governance listing standards.
Corporation Information
Our principal executive offices are located at 11/F, Bangkok Bank Building, No. 18 Bonham Strand W, Sheung Wan, Hong Kong S.A.R., People’s Republic of China. Our telephone number at this address is
 
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+852 2523-3588. Our registered office in the Cayman Islands is located at the office of Maples Corporate Services Limited, PO Box 309, Ugland House, Grand Cayman, KY1-1104, Cayman Islands. Our agent for service of process in the United States is Puglisi & Associates, located at 850 Library Avenue, Suite 204, Newark, Delaware 19711.
You can also find information on www.futuholdings.com. The information contained on our website is not a part of this prospectus supplement. Information appearing on our website is not incorporated by reference into this prospectus supplement or the accompanying prospectus.
 
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RISK FACTORS
Investing in the ADSs and Class A ordinary shares involves significant risks. Before making an investment decision, you should carefully consider the risk factors and uncertainties described below, together with the risks described in our 2021 Form 20-F, Exhibit 99.1 to the Supplemental 6-K, and the other information contained in this prospectus supplement and the accompanying prospectus, including the documents incorporated by reference herein and therein. Any of these risks described could materially adversely affect our business, financial condition, results of operations or ability to make distributions to our stockholders. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial may also materially and adversely affect our business operations. If this were to happen, the price of the ADSs and Class A ordinary shares could decline significantly and you could lose a part or all of your investment.
Please see “Where You Can Find More Information About Us” and “Incorporation of Documents by Reference” for information on where you can find the documents we have filed with or furnished to the SEC and which are incorporated by reference in this prospectus supplement.
Risks Related to Our Shares, the ADSs and the Listing
The trading price of the ADSs and Class A ordinary shares may be volatile, which could result in substantial losses to you.
The trading price of the ADSs has been volatile since the ADSs started to trade on the Nasdaq Global Market on March 8, 2019. The market price for the ADSs may continue to be volatile and subject to wide fluctuations in response to factors including, but not limited to, the following:

regulatory developments affecting us or our industry or China-based companies in general;

adverse market rumors, speculations, media reports or other negative publicity involving us or our industry or China-based companies in general, some of which may be unsubstantiated or inaccurate;

announcements of studies and reports relating to the quality of our credit offerings or those of our competitors;

changes in the economic performance or market valuations of other financial service providers;

actual or anticipated fluctuations in our quarterly results of operations and changes or revisions of our expected results;

changes in financial estimates by securities research analysts;

conditions in the market for financial services;

announcements by us or our competitors of new product and service offerings, acquisitions, strategic relationships, joint ventures, capital raisings or capital commitments;

additions to or departures of our senior management;

fluctuations of exchange rates between the Renminbi and the U.S. dollar;

release or expiry of lock-up or other transfer restrictions on our outstanding shares or the ADSs; and

sales or perceived potential sales of additional ordinary shares or ADSs.
In addition, the stock market in general, and the market prices for internet-related companies and companies with operations in China in particular, have experienced volatility that often has been unrelated to the operating performance of such companies. The securities of some China-based companies that have listed their securities in the United States have experienced significant volatility since their initial public offerings in recent years, including, in some cases, substantial declines in the trading prices of their securities, for example the significant volatility of the share prices after a series of policies and proposals issued by the Chinese government in relation to the education industry and cybersecurity review in 2021. See also “Risk Factors — Risks Related to Our Presence in China — Changes in social conditions, political and economic policies of the PRC government may materially and adversely affect our business, financial condition and results of operations and may result in our inability to sustain our growth and expansion strategies” in
 
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Exhibit 99.1 to the Supplemental 6-K. The trading performances of these companies’ securities after their offerings may affect the attitudes of investors towards Chinese companies listed in the United States in general, which consequently may impact the trading performance of our Class A ordinary shares or ADSs, regardless of our actual operating performance. In addition, any negative news or perceptions about inadequate corporate governance practices or fraudulent accounting, corporate structure or other matters of other Chinese companies may also negatively affect the attitudes of investors towards Chinese companies in general, including us, regardless of whether we have engaged in any inappropriate activities. Furthermore, the stock market in general has experienced large price and volume fluctuations that have often been unrelated or disproportionate to the operating performance of companies like us. These broad market and industry fluctuations may adversely affect the market price of our Class A ordinary shares or ADSs. Volatility or a lack of positive performance in our Class A ordinary shares or ADS price may also adversely affect our ability to retain key employees, most of whom have been granted options or other equity incentives.
In the past, shareholders of public companies have often brought securities class action suits against those companies following periods of instability in the market price of their securities. We may be the target of this type of litigation in the future. If we were involved in a class action suit, it could divert a significant amount of our management’s attention and other resources from our business and operations and require us to incur significant expenses to defend the suit, which could harm our results of operations. Any such class action suit, whether or not successful, could harm our reputation and restrict our ability to raise capital in the future. In addition, if a claim is successfully made against us, we may be required to pay significant damages, which could have a material adverse effect on our financial condition and results of operations.
Certain principal shareholders have substantial influence over our key corporate matters and will continue to have such influence following the Listing, which may deprive you of an opportunity to receive a premium for the Class A ordinary shares and/or ADSs and materially reduce the value of your investment.
As of the date of this prospectus supplement, Mr. Leaf Hua Li, our founder, chairman and chief executive officer, beneficially owned approximately 36.2% of the total issued share capital of our company and approximately 59.4% of the voting power of the total issued and outstanding share capital of our company. Accordingly, Mr. Li has significant influence in determining the outcome of any corporate transaction or other matter submitted to the shareholders for approval, including mergers, consolidations, election of directors and other significant corporate actions. This concentration of ownership may also discourage, delay or prevent a change in control of our company, which could deprive our shareholders of an opportunity to receive a premium for their shares as part of a sale of our company and might reduce the price of the Class A ordinary shares and/or ADSs. These actions may be taken even if they are opposed by our other shareholders, including the holders of our Class A ordinary shares or ADSs.
Our dual-class voting structure will limit your ability to influence corporate matters and could discourage others from pursuing any change of control transactions that holders of our Class A ordinary shares may view as beneficial, and may adversely affect the trading market for the shares.
Our authorized share capital is divided into Class A ordinary shares and Class B ordinary shares, together with certain undesignated shares which may be designated by our board of directors. Holders of Class A ordinary shares are entitled to one vote per share, while holders of Class B ordinary shares are currently entitled to twenty votes per share. Each Class B ordinary share is convertible into one Class A ordinary share at any time by the holder thereof, while Class A ordinary shares are not convertible into Class B ordinary shares under any circumstances. Upon any sale, transfer, assignment or disposition of any Class B ordinary shares by a holder thereof to any non-affiliate of such holder, each such Class B ordinary share will be automatically and immediately converted into one Class A ordinary share.
As of the date of this prospectus supplement, Mr. Leaf Hua Li, our founder, chairman of the board of directors and chief executive officer, and Qiantang River Investment Limited, an existing shareholder of ours beneficially owned all of our issued Class B ordinary shares. These Class B ordinary shares constituted approximately 34.16% of our total issued and outstanding share capital and approximately 91.21% of the aggregate voting power of our total issued and outstanding share capital due to the disparate voting powers associated with our dual-class share structure. The considerable influence of holders of our Class B ordinary shares will be reduced immediately upon the Listing, as a result of (i) the conversion of Class B ordinary
 
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shares held by Tencent Group into Class A ordinary shares upon the Listing and (ii) an amendment to Class B ordinary share’s voting power, where Class B ordinary shares will be capped at ten votes per share with effect from the Listing pursuant to the irrevocable written consent dated November 21, 2022 delivered by Mr. Li, while Class A ordinary shares will continue entitling the Shareholder to one vote per share. Upon the Listing and assuming that no further Shares are issued under the share incentive plans between December 15, 2022 and the Listing Date, Mr. Li will become the sole owner of our Class B ordinary shares, which will represent approximately 73.28% of the voting rights in our Company. On the other hand, as a result of the conversion of Class B ordinary shares held by Tencent Group into Class A ordinary shares upon the Listing, Tencent Group will beneficially own 247,418,662 Class A ordinary shares, representing approximately 7.56% of the voting power of our total issued and outstanding shares assuming that no further Shares are issued under the share incentive plans between December 15, 2022 and the Listing Date. Such conversion will have a dilutive impact on the voting right of our Class A ordinary shares in matters that is submitted to the class voting of holders of Class A ordinary shares only.
As a result of the above-mentioned concentration of our Share’s voting power and ownership, holders of Class B ordinary shares have considerable influence over matters such as decisions regarding mergers and consolidations, election of directors and other significant corporate actions. Such holders may take actions that are not in the best interest of us or our other shareholders. Our dual-class share structure and this concentration of ownership may discourage, delay or prevent a change in control of our company, which could have the effect of depriving our other shareholders of the opportunity to receive a premium for their shares as part of a sale of our company and may reduce the price of our Class A ordinary shares or ADSs. This concentrated control will limit your ability to influence corporate matters and could discourage others from pursuing any potential merger, takeover or other change of control transactions that holders of Class A ordinary shares and ADSs may view as beneficial.
The structure of our share capital may render the Class A ordinary shares and/or ADSs ineligible for inclusion in certain stock market indices, and thus adversely affect the market price and liquidity of the Class A ordinary shares and/or ADSs
We cannot predict whether our dual-class share structure with different voting rights will result in a lower or more volatile market price of our Class A ordinary shares or the ADSs, in adverse publicity, or other adverse consequences. Certain index providers have announced restrictions on including companies with multi-class share structures in certain of their indices. For example, S&P Dow Jones and FTSE Russell have changed their eligibility criteria for inclusion of shares of public companies on certain indices, including the S&P 500, to exclude companies with multiple classes of shares and companies whose public shareholders hold no more than 5% of total voting power from being added to such indices. As a result, our dual-class voting structure may prevent the inclusion of the ADSs representing our Class A ordinary shares in such indices, which could adversely affect the trading price and liquidity of the ADSs representing our Class A ordinary shares. In addition, several shareholder advisory firms have announced their opposition to the use of multiple class structure and our dual-class structure may cause shareholder advisory firms to publish negative commentary about our corporate governance, in which case the market price and liquidity of our Class A ordinary shares or the ADSs could be adversely affected.
If securities or industry analysts do not publish research or publish inaccurate or unfavorable research about our business, the market price for the Shares and/or ADSs and trading volume could decline.
The trading market for our Class A ordinary shares and ADSs will depend in part on the research and reports that securities or industry analysts publish about us or our business. If research analysts do not establish and maintain adequate research coverage or if one or more of the analysts who covers us downgrades our Class A ordinary shares and/or ADSs or publishes inaccurate or unfavorable research about our business, the market price for our Class A ordinary shares and/or ADSs would likely decline. If one or more of these analysts cease coverage of our company or fail to publish reports on us regularly, we could lose visibility in the financial markets, which, in turn, could cause the market price or trading volume for our Class A ordinary shares and/or ADSs to decline.
Because we do not expect to pay dividends in the foreseeable future, you must rely on price appreciation of the Class A ordinary shares or ADSs for return on your investment.
We currently intend to retain most, if not all, of our available funds and any future earnings to fund the development and growth of our business. As a result, we do not expect to pay any cash dividends in the
 
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foreseeable future. Therefore, you should not rely on an investment in our Class A ordinary shares and ADSs as a source for any future dividend income.
Our board of directors has complete discretion as to whether to distribute dividends. In addition, our shareholders may by ordinary resolution declare a dividend, but no dividend may exceed the amount recommended by our board of directors. In either case, all dividends are subject to certain restrictions under Cayman Islands law, namely that our company may only pay dividends out of profits or share premium, and provided that in no circumstances may a dividend be paid if this would result in our company being unable to pay its debts as they fall due in the ordinary course of business. Even if we decide to declare and pay dividends, the timing, amount and form of future dividends, if any, will depend on, among other things, our future results of operations and cash flows, our capital requirements and surplus, the amount of distributions, if any, received by us from our subsidiaries, our financial condition, contractual restrictions and other factors deemed relevant by our board of directors. Accordingly, the return on your investment in our Class A ordinary shares and/or ADSs will likely depend entirely upon any future price appreciation of our Class A ordinary shares and/or ADSs (as the case may be). There is no guarantee that our Class A ordinary shares and/or ADSs will appreciate in value or even maintain the price at which you purchased our Class A ordinary shares and/or ADSs. You may not realize a return on your investment in the Class A ordinary shares and/or ADSs and you may even lose your entire investment in our Class A ordinary shares or ADSs.
Substantial future sales or perceived potential sales of our listed securities in the public market could cause their trading price to decline.
Sales of substantial amounts of our Class A ordinary shares and/or ADSs in the public market, or the perception that these sales could occur, could adversely affect the market price of our Class A ordinary shares and ADSs and could materially impair our future ability to raise capital through equity offerings in the future. All of the ADSs representing our Class A ordinary shares sold in our initial public offering and follow-on offering are freely tradable without any restriction or further registration under the U.S. Securities Act of 1933, as amended, or the Securities Act, unless held by our “affiliates” as that term is defined in Rule 144 under the Securities Act. All of our shares outstanding prior to our initial public offering are “restricted securities” as defined in Rule 144 and, in the absence of registration, may not be sold other than in accordance with Rule 144 under the Securities Act or another exemption from registration.
The voting rights of holders of ADSs are limited by the terms of the deposit agreement, and holders of the ADSs must act through the depositary to exercise those rights.
Holders of ADSs do not have the same rights as our registered shareholders. Holders of ADSs do not have any right to attend general meetings of our shareholders or to cast any votes at such meetings. ADS holders will only be able to exercise the voting rights which are carried by the underlying Class A ordinary shares represented by their ADSs indirectly by giving voting instructions to the depositary in accordance with the provisions of the deposit agreement. If we instruct the depositary to ask for instructions from ADS holders, then upon receipt of such voting instructions, the depositary will try, as far as practicable, to vote the underlying Class A ordinary shares that are represented by the relevant ADSs, in accordance with the instructions from the ADS holder. If we do not instruct the depositary to ask for instructions from ADS holders, the depositary may still vote in accordance with instructions you give, but it is not required to do so. Under the deposit agreement for the ADSs, if ADS holders do not vote, the depositary will give us a discretionary proxy to vote our Class A ordinary shares underlying ADSs at shareholders’ meetings if:

we have timely provided the depositary with notice of meeting and related voting materials;

we have notified the depositary that we wish a discretionary proxy to be given;

we have notified the depositary that there is no substantial opposition as to a matter to be voted on at the meeting; and

a matter to be voted on at the meeting would not have a material adverse impact on shareholders.
The effect of this discretionary proxy is that if you do not vote at shareholders’ meetings, you cannot prevent our Class A ordinary shares underlying your ADSs from being voted under the circumstances described above. This may make it more difficult for shareholders to influence the management of our
 
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company. Holders of our Class A ordinary shares are not subject to this discretionary proxy. ADS holders will not be able to directly exercise their right to vote with respect to the underlying Class A ordinary shares represented by their ADSs unless they withdraw the shares and become the registered holder of such shares prior to the record date for the general meeting. Under our currently effective amended and restated memorandum and articles of association, the minimum notice period required for convening a general meeting is 10 calendar days. When a general meeting is convened, ADS holders may not receive sufficient advance notice of the meeting to withdraw the shares underlying their ADSs and to vote directly with respect to any specific matter or resolution to be considered and voted upon at the general meeting.
In addition, under our memorandum and articles of association, for the purposes of determining those shareholders who are entitled to attend and vote at any general meeting, our directors may close our register of members and/or fix in advance a record date for such meeting, and such closure of our register of members or the setting of such a record date may prevent an ADS holder from withdrawing the Class A ordinary shares underlying its ADSs and becoming the registered holder of such shares prior to the record date, so that such holder would not be able to attend the general meeting or to vote directly. If we ask for instructions from ADS holders, the depositary will notify ADS holders of the upcoming vote and will arrange to deliver our voting materials to them. We have agreed to give the depositary at least 30 days’ prior notice of shareholder meetings. Nevertheless, we cannot assure ADS holders that they will receive the voting materials in time to ensure that they can instruct the depositary to vote the underlying shares represented by their ADSs. In addition, the depositary and its agents are not responsible for failing to carry out voting instructions or for their manner of carrying out voting instructions received from ADS holders. This means that ADS holders may not be able to exercise their rights to direct how the shares underlying their ADSs are voted and they may have no legal remedy if the shares underlying their ADSs are not voted as they requested.
The right of the ADS holders to participate in any future rights offerings may be limited, which may cause dilution to your holdings.
We may from time to time distribute rights to our shareholders, including rights to acquire our securities. However, we cannot make rights available to you in the United States unless we register both the rights and the securities to which the rights relate under the Securities Act or an exemption from the registration requirements is available. Under the deposit agreement, the depositary will not make rights available to ADS holders unless both the rights and the underlying securities to be distributed to ADS holders are either registered under the Securities Act or exempt from registration under the Securities Act. We are under no obligation to file a registration statement with respect to any such rights or securities or to endeavor to cause such a registration statement to be declared effective and we may not be able to establish a necessary exemption from registration under the Securities Act. Accordingly, ADS holders may be unable to participate in our rights offerings in the future and may experience dilution in their holdings.
Holders of the ADSs may not receive cash dividends or other distributions if the depositary decides it is impractical to make them available to you.
The depositary will pay cash distributions on the ADSs only to the extent that we decide to distribute dividends on our Class A ordinary shares or other deposited securities, and we do not have any present plan to pay any cash dividends in the foreseeable future. To the extent that there is a distribution, the depositary has agreed to pay to holders of ADSs the cash dividends or other distributions it or the custodian receives on our Class A ordinary shares or other deposited securities after deducting its fees and expenses. ADS holders will receive these distributions in proportion to the number of Class A ordinary shares their ADSs represent. However, the depositary may, at its discretion, decide that it is inequitable or impractical to make a distribution available to any holders of ADSs. For example, the depositary may determine that it is not practicable to distribute certain property through the mail, or that the value of certain distributions may be less than the cost of mailing them. In these cases, the depositary may decide not to distribute such property to such ADS holders.
We and the depositary are entitled to amend the deposit agreement and to change the rights of ADS holders under the terms of such agreement, and we may terminate the deposit agreement, without the prior consent of the ADS holders.
We and the depositary are entitled to amend the deposit agreement and to change the rights of the ADS holders under the terms of such agreement, without the prior consent of the ADS holders. We and the
 
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depositary may agree to amend the deposit agreement in any way we decide is necessary or advantageous to us. Amendments may reflect, among other things, operational changes in the ADS program, legal developments affecting ADSs or changes in the terms of our business relationship with the depositary. In the event that the terms of an amendment are disadvantageous to ADS holders, ADS holders will only receive 30 days’ advance notice of the amendment, and no prior consent of the ADS holders is required under the deposit agreement. Furthermore, we may decide to terminate the ADS facility at any time for any reason. For example, terminations may occur when we decide to list our shares on a non-U.S. securities exchange and determine not to continue to sponsor an ADS facility or when we become the subject of a takeover or a going-private transaction. If the ADS facility terminates, ADS holders will receive at least 90 days’ prior notice, but no prior consent is required from them. Under the circumstances that we decide to make an amendment to the deposit agreement that is disadvantageous to ADS holders or terminate the deposit agreement, the ADS holders may choose to sell their ADSs or surrender their ADSs and become direct holders of the underlying Class A ordinary shares, but will have no right to any compensation whatsoever.
ADS holders may not be entitled to a jury trial with respect to claims arising under the deposit agreement, which could result in less favorable outcomes to the plaintiff(s) in any such action.
The deposit agreement governing the ADSs representing our Class A ordinary shares provides that, to the fullest extent permitted by law, ADS holders waive the right to a jury trial of any claim they may have against us or the depositary arising out of or relating to our shares, the ADSs or the deposit agreement, including any claim under the U.S. federal securities laws.
If we or the depositary opposed a jury trial demand based on the waiver, the court would determine whether the waiver was enforceable based on the facts and circumstances of that case in accordance with the applicable state and federal law. To our knowledge, the enforceability of a contractual pre-dispute jury trial waiver in connection with claims arising under the federal securities laws has not been finally adjudicated by the United States Supreme Court. However, we believe that a contractual pre-dispute jury trial waiver provision is generally enforceable, including under the laws of the State of New York, which govern the deposit agreement, by a federal or state court in the City of New York, which has non-exclusive jurisdiction over matters arising under the deposit agreement. In determining whether to enforce a contractual pre-dispute jury trial waiver provision, courts will generally consider whether a party knowingly, intelligently and voluntarily waived the right to a jury trial. We believe that this is the case with respect to the deposit agreement and the ADSs. It is advisable that you consult legal counsel regarding the jury waiver provision before entering into the deposit agreement.
If any holders or beneficial owners of ADSs bring a claim against us or the depositary in connection with matters arising under the deposit agreement or the ADSs, including claims under federal securities laws, such holder or beneficial owner may not be entitled to a jury trial with respect to such claims, which may have the effect of limiting and discouraging lawsuits against us and/or the depositary. If a lawsuit is brought against us and/or the depositary under the deposit agreement, it may be heard only by a judge or justice of the applicable trial court, which would be conducted according to different civil procedures and may result in different outcomes than a trial by jury would have had, including results that could be less favorable to the plaintiff(s) in any such action.
Nevertheless, if this jury trial waiver provision is not permitted by applicable law, an action could proceed under the terms of the deposit agreement with a jury trial. No condition, stipulation or provision of the deposit agreement or ADSs serves as a waiver by any holder or beneficial owner of ADSs or by us or the depositary of compliance with any substantive provision of the U.S. federal securities laws and the rules and regulations promulgated thereunder.
Holders of the ADSs may be subject to limitations on transfer of their ADSs.
The ADSs are transferable on the books of the depositary. However, the depositary may close its books at any time or from time to time when it deems it expedient in connection with the performance of its duties. The depositary may close its books from time to time for a number of reasons, including in connection with corporate events such as a rights offering, during which time the depositary needs to maintain an exact number of ADS holders on its books for a specified period. The depositary may also close its books in emergencies, and on weekends and public holidays. The depositary may refuse to deliver, transfer or register transfers of the
 
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ADSs generally when our share register or the books of the depositary are closed, or at any time if we or the depositary thinks it is advisable to do so because of any requirement of law or of any government or governmental body, or under any provision of the deposit agreement, or for any other reason.
Certain judgments obtained against us by our shareholders may not be enforceable.
We are an exempted company incorporated under the laws of the Cayman Islands. We conduct substantially our operations outside the United States and substantially all of our assets are located outside the United States. In addition, substantially all of our directors and executive officers and the experts named in this document reside outside the United States, and most of their assets are located outside the United States. As a result, it may be difficult or impossible for you to bring an action against us or against them in the United States in the event that you believe that your rights have been infringed under the U.S. federal securities laws or otherwise. Even if you are successful in bringing an action of this kind, the laws of the Cayman Islands, Hong Kong, China or other relevant jurisdiction may render you unable to enforce a judgment against our assets or the assets of our directors and officers.
You may face difficulties in protecting your interests, and your ability to protect your rights through Hong Kong or U.S. courts may be limited, because we are incorporated under Cayman Islands law.
We are an exempted company limited by shares incorporated under the laws of the Cayman Islands. Our corporate affairs are governed by our memorandum and articles of association, the Companies Act (As Revised) of the Cayman Islands and the common law of the Cayman Islands. The rights of shareholders to take action against our directors, actions by our minority shareholders and the fiduciary duties of our directors to us under Cayman Islands law are to a large extent governed by the common law of the Cayman Islands. The common law of the Cayman Islands is derived in part from comparatively limited judicial precedent in the Cayman Islands as well as from the common law of England, the decisions of whose courts are of persuasive authority, but are not binding, on a court in the Cayman Islands. The rights of our shareholders and the fiduciary duties of our directors under Cayman Islands law are not as clearly established as they would be under statutes or judicial precedent in some jurisdictions in the United States. In particular, the Cayman Islands has a less developed body of securities laws than the United States. Some U.S. states, such as Delaware, have more fully developed and judicially interpreted bodies of corporate law than the Cayman Islands. In addition, Cayman Islands companies may not have standing to initiate a shareholder derivative action in a federal court of the United States.
Shareholders of Cayman Islands exempted companies like us have no general rights under Cayman Islands law either (i) to inspect corporate records, other than the memorandum and articles of association and any special resolutions passed by such companies, and the registers of mortgages and charges of such companies, or (ii) to obtain copies of lists of shareholders of these companies. Our directors have discretion under our memorandum and articles of association to determine whether or not, and under what conditions, our corporate records may be inspected by our shareholders, but are not obliged to make them available to our shareholders. This may make it more difficult for you to obtain the information needed to establish any facts necessary for a shareholder motion or to solicit proxies from other shareholders in connection with a proxy contest.
Certain corporate governance practices in the Cayman Islands, which is our home country, differ significantly from requirements for companies incorporated in other jurisdictions such as the United States. As a result of all of the above, public shareholders may have more difficulty in protecting their interests in the face of actions taken by our management, members of our board of directors or our controlling shareholders than they would as public shareholders of a company incorporated in the United States.
Our currently effective amended and restated memorandum and articles of association contain anti-takeover provisions that could discourage a third party from acquiring us, which could limit our shareholders’ opportunity to sell their shares at a premium.
Our memorandum and articles of association contains provisions to limit the ability of others to acquire control of our company or cause us to engage in change-of-control transactions. These provisions could have the effect of depriving our shareholders of an opportunity to sell their shares at a premium over prevailing market prices by discouraging third parties from seeking to obtain control of our company in a tender offer or
 
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similar transaction. For example, our board of directors has the authority, without further action by our shareholders, to issue preferred shares in one or more series and to fix their designations, powers, preferences, privileges, and relative participating, optional or special rights and the qualifications, limitations or restrictions, including dividend rights, conversion rights, voting rights, terms of redemption and liquidation preferences, any or all of which may be greater than the rights associated with our ordinary shares. Preferred shares could be issued quickly with terms calculated to delay or prevent a change in control of our company or make removal of management more difficult. If our board of directors decides to issue preferred shares, the price of our Class A ordinary shares and/or ADSs may fall and the voting and other rights of the holders of our Class A ordinary shares and ADSs may be materially and adversely affected.
However, our exercise of any such power that may limit the ability of others to acquire control of our Company or cause us to engage in change-of-control transactions under our Articles after the Listing will be subject to our overriding obligations to comply with all applicable Hong Kong laws and regulations, the Listing Rules, and the Takeovers Code. We will at the first general meeting to be held after the Listing, propose to our shareholders certain amendments to our articles, including removing the directors’ powers under the articles to authorize the division of shares into any number of classes and to determine the relative rights, restrictions, preferences, privileges and payment obligations as between the different classes and to issue the shares with such preferred or other rights which may be greater than the rights of ordinary shares, as well as making the directors’ power to issue preferred shares to be subject to the articles, compliance with the Hong Kong Listing Rules (and only to such extent permitted thereby) and the relevant Hong Kong takeovers codes and any applicable rules and regulations of authorities of places where the securities of the Company are listed, and the condition that (x) no new class of shares with voting rights superior to Class A ordinary shares will be created and (y) any variation in the relative rights as between the different classes will not result in creating new class of shares with voting rights superior to those of Class A ordinary shares.
We are a foreign private issuer within the meaning of the rules under the Exchange Act, and as such we are exempt from certain provisions applicable to U.S. domestic public companies.
Because we qualify as a foreign private issuer under the Exchange Act, we are exempt from certain provisions of the securities rules and regulations in the United States that are applicable to U.S. domestic issuers, including:

the rules under the Exchange Act requiring the filing with the SEC of quarterly reports on Form 10-Q or current reports on Form 8-K;

the sections of the Exchange Act regulating the solicitation of proxies, consents, or authorizations in respect of a security registered under the Exchange Act;

the sections of the Exchange Act requiring insiders to file public reports of their stock ownership and trading activities and liability for insiders who profit from trades made in a short period of time; and

the selective disclosure rules by issuers of material nonpublic information under Regulation FD.
We are required to file an annual report on Form 20-F within four months of the end of each fiscal year. In addition, we intend to publish our results on a quarterly basis as press releases, distributed pursuant to the rules and regulations of the Nasdaq Global Market. Press releases relating to financial results and material events will also be furnished to the SEC on Form 6-K. However, the information we are required to file with or furnish to the SEC will be less extensive and less timely compared to that required to be filed with the SEC by U.S. domestic issuers. As a result, you may not be afforded the same protections or information that would be made available to you were you investing in a U.S. domestic issuer.
As a company incorporated in the Cayman Islands, we are permitted to adopt certain home country practices in relation to corporate governance matters that differ significantly from the Nasdaq listing standards; these practices may afford less protection to shareholders than they would enjoy if we complied fully with the Nasdaq listing standards.
As a Cayman Islands company listed on the Nasdaq Global Market, we are subject to the Nasdaq listing standards. However, the Nasdaq rules permit a foreign private issuer like us to follow the corporate governance practices of its home country. Certain corporate governance practices in the Cayman Islands, which is our
 
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home country, may differ significantly from the Nasdaq listing standards. Currently, we rely on home country practice as our audit committee consists of two independent directors. We also rely on home country practice exemption with respect to the requirement for annual shareholders meeting and did not hold an annual shareholder meeting in 2021. As a result, our shareholders are afforded less protection than they would otherwise enjoy under the Nasdaq listing standards applicable to U.S. domestic issuers.
We are a “controlled company” within the meaning of the Nasdaq Stock Market Rules and, as a result, can rely on exemptions from certain corporate governance requirements that provide protection to shareholders of other United States domestic companies.
We are a “controlled company” as defined under the Nasdaq Stock Market Rules because Mr. Leaf Hua Li, our founder, chairman of the board of directors and chief executive officer, owns more than 50% of our total voting power. We are permitted to elect to rely, and are currently relying, on certain exemptions from corporate governance rules under the Nasdaq Stock Market Rules. Currently, the majority of our board of directors are not independent directors. In addition, the compensation of our executive officers is not determined or recommended solely by independent directors, and our director nominees are not selected or recommended solely by independent directors. As a result, you do not have the same protection afforded to shareholders of companies that are subject to these corporate governance requirements.
There can be no assurance that we will not be a passive foreign investment company, or PFIC, for United States federal income tax purposes for any taxable year, which could subject United States investors in the ADSs or Class A ordinary shares to significant adverse United States income tax consequences.
We will be classified as a passive foreign investment company, or PFIC, for any taxable year if either (a) 75% or more of our gross income for such year consists of certain types of “passive” income or (b) 50% or more of the value of our assets (generally determined on the basis of a quarterly average) during such year produce or are held for the production of passive income, or the asset test. Although the law in this regard is unclear, we intend to treat the VIEs (including their subsidiaries) as being owned by us for United States federal income tax purposes, not only because we exercise effective control over the operation of such entities but also because we are entitled to substantially all of their economic benefits, and, as a result, we consolidate their results of operations in our consolidated financial statements. Based upon our current and expected