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

Jessy, Golden Finance

On June 26, Hong Kong released the "Hong Kong Digital Asset Development Policy Declaration 2.0", proposing the "LEAP" framework, committed to making Hong Kong a global leader in digital asset center.

As a result, in the Hong Kong stock market, Guotai Junan International, as the first Hong Kong-based Chinese brokerage firm to provide comprehensive virtual asset-related trading services, saw its stock price rise from HKD 1.24 to a peak of HKD 7.02 over the two trading days of June 25 and 26, ultimately closing at HKD 3.54. Driven by Guotai Junan International, the Hong Kong Chinese brokerage index surged 11.75% in a single day. Tianfeng Securities’ subsidiary, Tianfeng International, obtained a virtual asset trading license, which also led to its A-share price hitting the daily limit. Victory Securities, as the first brokerage to enable cryptocurrency deposits and withdrawals, achieved a maximum price increase of 160% in one day on the 26th. The unusual activity in the capital market reflects the expectation for brokerages' business development in the virtual asset sector.

On the day after the announcement was released, Hong Kong's first daily redeemable tokenized security was 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 virtual assets on brokerage platforms and tokenized securities may just be a starting point; in the future, more traditional brokerages may bring more innovations to the cryptocurrency 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 brokerage firms. The impact of this declaration on brokerages lies primarily in providing clear policy endorsements, lowering compliance thresholds, and indicating the direction for business innovation.

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

"E" (Ecology) aims to build an ecosystem that integrates Web3 and traditional finance. Brokerages, as important hubs in traditional financial markets, will be deeply integrated into this ecosystem. This is not just about adding a "crypto trading" section; it also means that brokerages 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, developing innovative financial products, and so on.

"A" (Assets) focuses on the development of 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 reflected on-chain in future Hong Kong. In the RWA sector, brokerages can participate in the issuance and management of RWAs, such as acting as underwriters and providing related consulting services, which helps optimize the income structure of brokerages and explore new profit growth points. The "GF Token" rapidly launched by GF Securities (Hong Kong) is an example. In the future, we should be able to see more tokenized bonds, fund shares, private equity, and even complex derivative 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 channels, thereby enhancing their competitiveness and influence in the global digital asset market.

From losses to new opportunities brought by cryptocurrency

In recent years, due to factors such as global economic fluctuations, geopolitical issues, and the 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 the data from Hong Kong Exchanges and Clearing Limited, about 37 brokerages stopped trading in 2024. Data from the past three years shows that the number of Hong Kong brokerages has been decreasing year by year. The entry threshold for financial license applications in Hong Kong is relatively low, leading to a large number of small and medium-sized brokerages in the market, resulting in fierce homogeneous competition. In recent years, the Hong Kong stock market has shown weak performance, further exacerbating the operational pressure on brokerages. Some small and medium-sized brokerages are experiencing poor operating conditions and face significant survival pressure.

The "Hong Kong Digital Asset Development Policy Declaration 2.0" may bring new opportunities for the development of brokerages. 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 allows existing securities trading licenses to provide virtual asset trading services. Most of these are brokerages, including Victory Securities, Tiger Brokers, Futu Securities, Tianfeng International under Tianfeng Securities, and Haifu Securities under Dongfang Caifu.

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 more than 10% of virtual assets.

With the implementation of the "LEAP" framework and the deepening practices of brokerages, the Hong Kong market is expected to witness a wave of financial innovation led by brokerages, and the "GF Token" may just be the beginning. More types of tokenized bonds, funds, REITs, and even IPOs will emerge. Brokerages will also leverage 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 so on. A seamless "fiat currency-stablecoin-cryptocurrency-traditional security" exchange and trading experience will also be realized. Brokerages can provide leveraged services such as margin financing based on clients' held digital assets as collateral, integrating comprehensive wealth management and asset allocation solutions for digital assets, and more.

However, the arrival of "spring" is not an overnight achievement. The declaration provides fertile soil and a clear direction, but real harvest requires brokerages to continuously delve into areas such as technological innovation, compliance risk control, customer education, and product design. Challenges have always been present, and the competition is fierce enough. For brokerages in the cryptocurrency asset arena, they face not only competition among themselves but also competition from compliant exchanges in the same industry.

The active entry of brokerages into the crypto industry undoubtedly builds a bridge between crypto and traditional finance, making the flow of funds between traditional financial products and virtual currencies smoother.