Hong Kong's digital asset 2.0 era: Is it the spring for brokerages?

On June 26, Hong Kong released the "Hong Kong Digital Asset Development Policy Declaration 2.0," proposing the "LEAP" framework, aiming to build Hong Kong into a global leading digital asset center.

As a result, on the Hong Kong stock market, Guotai Junan International, as the first Hong Kong-based brokerage firm to provide comprehensive virtual asset-related trading services, saw its stock price rise from HKD 1.24 to a high of HKD 7.02 over the two trading days of June 25 and 26, eventually closing at HKD 3.54. Driven by Guotai Junan International, the Hong Kong Chinese brokerage index soared by 11.75% in a single day. Tianfeng International, a subsidiary of Tianfeng Securities, obtained a virtual asset trading license, which also led to its A-share stock price hitting the upper limit, while Shengli Securities, as the first brokerage to realize the entry and exit of cryptocurrencies, achieved a maximum increase of 160% in its stock on the 26th alone. The unusual movements in the capital market reflect expectations for the development of brokerage firms' businesses in the virtual asset field.

On the day after the announcement was released, Hong Kong's first daily redeemable tokenized securities were officially launched. It is reported that GF Securities (Hong Kong), as the first broker to issue tokenized securities in Hong Kong, has now launched the first daily redeemable tokenized security "GF Token". However, this product is a privately placed tokenized money market fund and is only available to qualified institutional investors.

Trading digital assets and tokenized securities on brokerage platforms may just be a starting point; in the future, more traditional brokerages may bring more innovations to the crypto space.

New Opportunities for Brokers under the LEAP Framework

The "LEAP" framework proposed in the "Declaration 2.0" outlines a clear development path for the digital asset market in Hong Kong and opens up unprecedented business growth opportunities for traditional brokerages. The impact of this declaration on brokerages lies mainly in providing clear policy endorsement, lowering compliance thresholds, and indicating the direction for business innovation.

Specifically, "L" (Law) emphasizes the improvement of the regulatory framework. For brokerages, this means that there are clearer rules to follow when engaging in virtual asset trading, custody, issuance, and other businesses.

"E" (Ecosystem) aims to build an ecosystem that integrates Web3 and traditional finance. Brokers, as an important hub in the traditional financial market, will be deeply integrated into this ecosystem. This is not just about adding a "crypto trading" segment; it also means that brokers can participate in a broader digital asset lifecycle, including but not limited to connecting traditional investors with digital assets, providing comprehensive wealth management based on tokenized assets, offering investment banking services for digital asset projects, and developing innovative financial products, among others.

"A" (asset) focuses on developing tokenized and other new types of assets. The declaration regards RWA tokenization as a key industry, with physical assets such as precious metals, green energy, and warehouse receipts potentially being mapped onto the blockchain in future Hong Kong. In the RWA sector, brokerages can participate in RWA issuance and management processes, such as acting as underwriters and providing related consulting services, which helps to optimize the revenue structure of brokerages and explore new profit growth points. The rapid launch of the "GF Token" by GF Securities (Hong Kong) is a prime example. In the future, we should see more tokenized bonds, fund shares, private equity, and even complex derivatives structures led by brokerages, greatly enriching their product lines and service ranges.

"P" (Partnership) emphasizes regional and international cooperation. Hong Kong brokers may seize this opportunity to collaborate with leading international digital asset service providers, technology providers, and global projects seeking compliant pathways, which will enhance their competitiveness and influence in the global digital asset market.

From losses to new opportunities brought by cryptocurrency

In recent years, due to global economic fluctuations, geopolitical factors, and a decline in the activity level of the Hong Kong stock market, traditional brokerage and underwriting businesses of Hong Kong securities firms are generally facing growth pressure.

According to data from Hong Kong Exchanges and Clearing Limited, about 37 brokerages ceased trading in 2024. Data from the past three years shows that the number of brokerages in Hong Kong has been decreasing year by year. The entry threshold for financial licensing applications in Hong Kong is relatively low, resulting in a large number of small and medium-sized brokerages and intense homogeneous competition in the market. In recent years, the performance of the Hong Kong stock market has been sluggish, further intensifying the operational pressure on brokerages. Some small and medium-sized brokerages are experiencing poor operating conditions and facing significant survival pressure.

The "Hong Kong Digital Asset Development Policy Declaration 2.0" may bring new opportunities for broker development. According to the Hong Kong Securities and Futures Commission's official website, as of June 26, a total of 41 institutions have completed the upgrade of License No. 1, which upgrades the existing securities trading license to provide virtual asset trading services, most of which are brokerage firms, including Victory Securities, Tiger Brokers, Futu Securities, Tianfeng International under Tianfeng Securities, and Haifu Securities under Eastmoney.

Recently, 37 institutions have been approved to upgrade to License No. 4, which is for virtual asset investment consulting—providing professional advice on digital assets, including Zhongtai International Securities, Ping An Securities Hong Kong, and others; 40 asset management institutions have been approved to upgrade to License No. 9, which is for virtual asset management—managing funds with over 10% of virtual assets.

With the implementation of the "LEAP" framework and the deepening of broker practices, the Hong Kong market is expected to welcome a wave of financial innovation led by brokers, and the "GF Token" may just be the beginning. More types of tokenized bonds, funds, REITs, and even IPOs will emerge. Brokers will also utilize their structuring capabilities and distribution networks to become core issuers and market makers.

Looking to the future, brokerages may combine smart contracts to develop more complex structured income certificates, derivatives linked to the performance of digital assets, automated investment strategy products, and more. A seamless "fiat currency-stablecoin-cryptocurrency-traditional securities" exchange and trading experience will also be realized. Brokerages can provide leveraged services such as margin financing based on the digital assets held by clients as collateral, integrating comprehensive wealth management and asset allocation solutions for digital assets, among other things.

However, the arrival of "spring" is not a sudden event. The declaration provides fertile soil and clear direction, but real harvest requires brokers to continuously delve into technological innovation, compliance risk control, customer education, product design, and other areas. Challenges have always existed, and the competition is fierce enough. For brokers, in the arena of digital assets, they face not only competition among brokers but also competition from compliant exchanges within the industry.

The active involvement of brokerages in the cryptocurrency industry undoubtedly builds a bridge between crypto and traditional finance, facilitating smoother capital flows between traditional financial products and virtual currencies.