Bank of China unit issues digital securities on Ethereum blockchain in Hong Kong amid city's virtual asset push

Bank of China, through its global investment arm, has become the first mainland financial institution to issue a tokenised security in Hong Kong amid the city's effort to become a virtual asset trading hub.

Hong Kong-based Bank of China International Holdings (BOCI) has issued 200 million yuan (US$28 million) worth of fully digital structured notes in the form of tokens on the Ethereum blockchain, according to a statement on Monday from the investment bank UBS, which created the product and placed it with its Asia-Pacific clients.

A tokenised security is one that is recorded on a distributed ledger rather than in traditional computerised book entries. The new product, constituted under Hong Kong and Swiss law, follows the first tokenised security that UBS issued in December as a US$50 million fixed-rate note, the bank said.

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"We are driving the simplification of digital asset markets and products," said BOCI deputy chief Ying Wang in a statement. "We are encouraged by the evolution of Hong Kong's digital economy and are committed to promoting the digital transformation and innovative development of Hong Kong's financial industry."

Ethereum, one of the largest distributed ledgers in the world, is best known for ether, the second-largest cryptocurrency by market capitalisation after bitcoin. Its main innovation was the creation of programmable smart contracts that allow for a variety of product types, but as a public blockchain that manages fees using its native cryptocurrency, it cannot be used legally in mainland China.

Hong Kong's moves since last October to court virtual asset business has led to some speculation that the city could be the mainland's gateway to the crypto market. Experts say the BOCI move is a positive sign for Hong Kong's crypto ambitions.

"The successful combination of traditional finance products and the abilities of digital assets is a further stepping stone for the nascent digital asset market in Hong Kong, and further cements Hong Kong's leading position as the dominant institutional digital asset centre," said Donald Day, chief operating officer of VDX, a Hong Kong-based digital asset platform.

Adrian Wang, founder and CEO of virtual asset wealth management firm Metalpha, described the move a "win-win" for Hong Kong and blockchain companies operating in the region.

The issuance "signals a more affable approach to the general public and further showcases Hong Kong's strides in becoming a global blockchain and Web3 hub", said Nick Ruck, COO of ContentFi Labs, which develops Web3 monetisation infrastructure for creators.

In February, the Hong Kong government successfully issued tokenised green bonds worth HK$800 million (US$102 million) in the first sale of its kind. Bank of China (Hong Kong) was one of the deal's global coordinators.

Under new rules that went into effect this month, Hong Kong has introduced mandatory licensing requirements for crypto exchanges seeking to serve customers in the city. It allows retail investors to buy from licensed exchanges for the first time, but limits them to tokens with large market capitalisations.

Hong Kong has joined a number of countries and regions like Singapore and the European Union in developing new rules to rein in the once freewheeling crypto industry after a market crash precipitated by high-profile failures like the FTX bankruptcy.

I hereby offer an invitation to welcome all global virtual asset trading operators including @coinbase to come to HK for application of official trading platforms and further development plans. Please feel free to approach me and I am happy to provide any assistance. pic.twitter.com/bcIi1IjMlc

- Johnny Ng 吴杰庄 (@Johnny_nkc) June 10, 2023

Crypto companies have found the regulatory clarity in these locations to be preferable to approaches taken in mainland China, where trading cryptocurrency is strictly banned, and the US, which in the absence of specific legislation has resulted in a crackdown from the Securities and Exchange Commission (SEC). This month, the SEC sued Binance and Coinbase, the world's two largest crypto exchanges by trading volume, for selling unregistered securities.

Meanwhile, one Hong Kong lawmaker has invited Coinbase and other exchanges to operate out of the Asian financial hub. Over the weekend, Legislative Council member Johnny Ng said on Twitter that he "welcomed all global virtual asset trading operators including Coinbase to come to Hong Kong for application of official trading platforms and further development plans".

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2023 South China Morning Post Publishers Ltd. All rights reserved.

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