GF Securities issues tokenized bonds in Hong Kong

Securities broker GF Securities has launched its tokenized bond offering using blockchain technology in a giant leap toward digitization.

The tokenized bond, issued in line with Hong Kong’s regulations, leverages Ethereum and the benefits of using a publicly distributed ledger. The firm was issued by GuangFa Holdings (Hong Kong) and turned to ABT Tech for technical assistance in deploying its real-world asset (RWA) tokenization platform.

The RWA tokenization platform offers investors an extra layer of confidentiality and security while achieving full compliance with Hong Kong’s capital market rules.

GF Securities enlisted Linklaters as the official legal advisor for the issuance, roping in the multinational law firm for its extensive regional expertise. Linklaters previously tried for Hong Kong’s tokenized green bond dubbed Project Evergreen and the tokenized structured note foray by the Bank of China (NASDAQ: BACHY).

The securities broker, with a market capitalization of $13 billion, cites several benefits for its pivot to tokenization, including cost-saving, transparency, and the potential to increase liquidity for the asset class.

Linklaters Head of Structured Finance and Derivatives Chin-Chong Liew described the decision to roll out the offering in Hong Kong as a no-brainer, citing the city-state’s favorable stance toward tokenization.

“This is a testament that Hong Kong law is sufficiently flexible and resilient to accommodate the tokenisation of financial assets to serve the needs of market participants without specific need for widespread law reform,” said Liew.

Liew points to the framework for tokenizing investment assets established by the region’s Securities and Futures Commission (SFC) as a critical factor in the decision-making process, but the prospect of secondary trading remains slim.

Several financial firms have rolled out plans for digital bonds in the coming months, including Germany’s development bank KfW, Hitachi (NASDAQ: HTHIF), and Nomura (NASDAQ: NRSCF). Santander (NASDAQ: SAN) and Société Générale (NASDAQ: SCGLF) have since issued their digital bonds, while the Swiss cities of Basel and Zurich have tinkered with the offering.

Hong Kong plans for tokenized green bonds

Following the success of Hong Kong’s first tokenized green bond, the country’s banking regulator is looking for a second iteration as early as February 2024. Hong Kong Monetary Authority (HKMA) Chief Executive Eddie Yue disclosed that a swathe of macroeconomic forces may push the central bank to roll out yet another tokenized green bond offering.

Several banks expected to participate in the issuance have already wrapped up roadshows hinting at the launch of a second green bond. Experts say the details will be similar to the first iteration and solely rely on distributed ledger technology (DLT) “from derivation to recovery.”

“It also showed the potential in DLT to enhance efficiency, liquidity, and transparency in bond markets,” said the HKMA in a review of the first tokenized green bond.

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