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<\/p>\nHong Kong\u2019s securities regulatory authority has issued two circulars to regulate digital asset tokenization in its pursuit of becoming a prominent Web3 hub in Asia.<\/p>\n
The Securities and Futures Commission (SFC), in these circulars, offered instructions to intermediaries participating in tokenized securities activities and outlined the criteria for tokenizing investment products authorized by the SFC.<\/p>\n
The SFC considers tokenized securities as traditional securities with a tokenization layer. As a result, the exact legal and regulatory requirements that apply to conventional securities markets also pertain to tokenized securities.<\/p>\n
The regulator specified that tokenized securities offerings must adhere to the Companies Ordinance\u2019s prospectus regime and the Securities and Futures Ordinance\u2019s offers of investments regime. Additionally, intermediaries providing advice on tokenized securities, managing tokenized funds, and facilitating secondary market trading on virtual asset trading platforms must comply with the existing conduct requirements for securities-related activities.<\/p>\n
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The recent guidance from the regulator coincides with Hong Kong\u2019s exploration of tokenization. In February, the Hong Kong Monetary Authority, acting as the de facto central bank, issued the world\u2019s inaugural tokenized green bond, successfully raising approximately $100 million.<\/p>\n
According to the circular, trading platforms with licenses must establish SFC-approved compensation arrangements to safeguard against potential security token losses. To illustrate, operators of cryptocurrency trading platforms can show their adoption of protective measures like transfer restrictions or whitelisting to ensure the security of tokenized securities.<\/p>\n
Related: <\/em><\/strong>\u200b\u200bJPEX scandal won\u2019t hurt Hong Kong crypto vision: Financial Secretary<\/em><\/strong><\/p>\n Conversations about tokenization have recently surged, and the SFC noted a heightened interest from financial institutions in tokenizing traditional financial instruments within the global financial markets. <\/p>\n The regulatory body clarified that it has been reviewing different suggestions regarding tokenizing SFC-authorized investment products, including those related to the primary offering and secondary trading of tokenized products on SFC-licensed virtual asset trading platforms. It added:<\/p>\n \u201cThe SFC sees the potential benefits of tokenization to the financial markets, particularly in increasing efficiency, enhancing transparency, reducing settlement time and lowering costs for traditional finance, but it is also aware of the new risks arising from using this technology.\u201d\u00a0<\/p><\/blockquote>\n