The Securities and Futures Commission in Hong Kong, according to Christina Choi, is developing more specific guidelines on the tokenization of approved financial products.
An representative from the financial sector stated that Hong Kong will provide guidelines on the tokenization of recognized investment products “shortly.”
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In a speech on Tuesday, Christina Choi, executive director of investment products for Hong Kong’s Securities and Futures Commission, stated that the SFC is developing such a guideline.
Because Hong Kong’s virtual asset services platforms regulation is still in its infancy, Choi said, “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.”
Hong Kong formally launched its crypto licensing program for VATPs in June, enabling authorized exchanges to provide retail trading services.
Unsafe secondary trading
However, tokenization would “certainly bring new risks as well as legal, regulatory and supervisory issues with the use of new technology,” Choi noted.
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According to Choi, “Secondary trading of tokenized SFC-authorized products on VATPs would warrant more caution and careful consideration,” noting that secondary trading would amplify some of the hazards that might be considerably more manageable in main dealing but not so in a 24/7 trading environment.
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A tokenized product would effectively become a “exchange traded product” through secondary trading, she explained. The VATP would perform the same functions as a traditional stock market in this scenario, facilitating the secondary trading of securities and other products made available to the Hong Kong public, with the main distinction being that it is represented as a token rather than a stock.
Increased scrutiny
In a police operation known as “tieguan” or “iron gate,” Hong Kong authorities smashed the cryptocurrency exchange JPEX over the course of the last two weeks and detained at least 11 individuals. Additionally, the authorities have requested that local telecom companies ban access to JPEX online.
The SFC had issued a warning on September 13 after crypto influencers and the trading platform JPEX were found to have “made false or misleading statements on social media” by claiming the company had applied for a virtual asset trading license in Hong Kong. This warning led to the enforcement. In response to JPEX inquiries, the SFC was compelled to divulge crypto license applicants.
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