As part of its effort to embrace digitization, Hong Kong is actively exploring tokenizing investment products and is committed to developing a comprehensive rule book in the near future. The Securities and Futures Commission (SFC) of Hong Kong, represented by executive Christina Choi, has announced plans to introduce a framework to guide tokenization initiatives. While the exact timeline for the publication of the rules has not been disclosed, the forthcoming rule book will cover tokenization of various assets such as bonds, stocks, real estate, mutual funds, and corporate bonds. Experts suggest that the SFC’s regulation of tokenization will be implemented in two phases, focusing on primary and secondary trading.
Given the early-stage development of the region’s digital currency ecosystem, Choi emphasized that the SFC is comfortable with primary trading of tokenized SFC-authorized products. Notably, Hong Kong has recently introduced a new licensing regime for digital currency service providers in line with its vision of becoming a Web3 hub. However, the SFC currently views secondary trading of tokenized products with caution due to potential legal and supervisory risks. Secondary trading would require a 24/7 setup, which the SFC is not currently equipped to handle. In this context, the tokenized products are expected to operate as exchange-traded products.
Hong Kong has already made strides in tokenization through its experimental green-bond project, known as Project Evergreen. This $101 million offering utilized blockchain technology to tokenize bonds, showcasing the potential of distributed ledgers to enhance efficiency, liquidity, and transparency in bond markets, as noted by the Hong Kong Monetary Authority (HKMA).
Despite Hong Kong’s progressive approach to tokenization and Web3, the authorities maintain a strict stance against bad actors. Following the enforcement action against JPEX, an unregistered exchange facing a liquidity crisis, the government has reiterated its position. To date, over 12 individuals have been arrested in connection with the case, following numerous complaints from affected investors. JPEX, however, denies any wrongdoing and criticizes the SFC for alleged unfair treatment, even threatening to abandon its plans for formal registration in Hong Kong.