* Campaign to target foreign brokers seeking Chinese

clients

* Hong Kong SEC also finds 'deficiencies' at 12 brokers

* Shares in Futu, Tiger tank pre-market; PDD, Alibaba ( BABA )

fall

(Recasts and writes through adding details, pre-market

reaction, broker response and a broker quote)

SHANGHAI/HONG KONG, May 22 (Reuters) - China announced a

major crackdown on cross-border investment on Friday and

penalties for brokers it accused of illegally moving money to

foreign markets, sending their shares plunging.

The move intensifies scrutiny of capital outflows - which

are strictly controlled by China - and sent shares of popular

Chinese companies listed abroad lower because the affected

brokers' clients will be limited to selling shares, not buying.

The China Securities Regulatory Commission, which launched

the crackdown with seven other government agencies including the

central bank, said in a statement it was targeting overseas

firms and their local partners operating without approval.

The CSRC plans to impose penalties on online brokerages

Tiger, Futu and Longbridge for soliciting business in China

without an onshore licence, the statement said, with illegal

gains to be forefeited although no financial amount was

mentioned.

A Tiger spokesperson said the company "has always placed

compliance as a top priority". It noted the CSRC statement,

would cooperate and "all business operations remain normal."

Futu said it had high compliance standards, had previously

stopped adding accounts for mainland applicants and rejected

tens of thousands of applications that did not meet

requirements. At the end of the first quarter, mainland

investors accounted for 13% of its customer base.

Longbridge did not immediately respond to a request for

comment.

NO NEW INVESTMENTS ALLOWED DURING TWO-YEAR WIND-DOWN

The firms will be given a two-year grace period to wind down

illegal activities, the regulator said, during which time

customers will only be allowed to sell existing holdings and

withdraw funds, with no new investments allowed.

Shares in Tiger parent UP Fintech Holding and in

Futu Holdings notched falls of more than 30% in

pre-market trade. Longbridge is not listed.

U.S.-listed shares, of Chinese companies Alibaba ( BABA )

and PDD Holdings ( PDD ), the operator of online marketplace Temu, fell

sharply in pre-market trade with PDD down about 6% and Alibaba ( BABA )

falling 4%.

The regulators' announcement came after markets closed on

the mainland and in Hong Kong on Friday. Hang Seng futures

fell 0.7%.

"In short term, these actions may cool down some trading and

speculative activities in Hong Kong," said Steven Leung,

director of institutional sales for UOB-Kay Hian in Hong Kong.

Friday's crackdown widens years of scrutiny, which stepped

up late in 2022 when the CSRC banned overseas institutions from

opening accounts for mainland investors.

It is aimed at protecting "healthy development of the

capital market, channel outbound investments via legal channels,

and protect investors," the CSRC said.

In Hong Kong, where most of the accounts in question are

located, the financial hub's Securities and Futures Commission,

also said Friday it discovered "significant deficiencies" after

conducting a review of 12 brokers operating in the market.

Hong Kong's SFC said it will require brokers to close

accounts opened with questionable or forged documents and make

stricter checks for new accounts and their funding sources.

The city had claimed top spot globally in the first quarter

after companies raised HK $209.9 billion ($26.79 billion) in

equity capital, according to KPMG.

Share sales to retail clients constitute a sizable portion

of brokers' revenue, with Futu and Tiger acting as underwriters

of stock offerings for more than 80 and 45 listings since the

start of 2025, exchange filings showed.