Hong Kong to issue guidance on tokenizing stocks ‘in near term'

Hong Kong will issue guidance on tokenization of authorized investment products “in the near term,” a financial official said.

Christina Choi, executive director of investment products of Hong Kong’s Securities and Futures Commission, said in a speech on Tuesday that the SFC is working on such a guidance.

“Our current thinking is that in principle, primary dealing of tokenized SFC-authorized products would be more appropriate to be allowed first at this stage in view of the nascent state of development of the [virtual asset services platforms] regime in Hong Kong,” Choi said.

In June, Hong Kong officially started its crypto licensing regime for VATPs, allowing licensed exchanges to offer retail trading services.

Secondary trading risks

Tokenization, however, would “certainly bring new risks as well as legal, regulatory and supervisory issues with the use of new technology,” Choi continued.

“Secondary trading of tokenized SFC-authorized products on VATPs would warrant more caution and careful consideration,” Choi explained, adding that secondary trading would magnify some of the risks that might be much more manageable in primary dealing, but not so in a 24/7 trading setup.

“Secondary trading would effectively make a tokenized product an ‘exchange traded product,’” she said. “In this case, the VATP would function like a conventional stock exchange that facilitates secondary trading of securities and other products offered to the Hong Kong public, with the only key difference being that it is represented as a token rather than a stock.”

Heightened scrutiny

Over the past two weeks, Hong Kong authorities have busted crypto exchange JPEX and arrested at least 11 people in a police force action dubbed “tieguan” or “iron gate.” The authorities have also asked local telecoms providers to block online access to JPEX.

The enforcement came after the SFC warned on Sept. 13 that crypto influencers and the trading platform JPEX had “made false or misleading statements on social media” by suggesting the firm had applied for a virtual asset trading license in Hong Kong. That prompted the SFC to disclose crypto license applicants in the wake of JPEX probes.