Recently, the Hong Kong Securities Regulatory Commission (SFC) issued a position paper with a lot of information. I extracted some key contents and summarized it in four sentences:
①Centralized exchanges that only provide non-security tokens do not fall under the supervision of the China Securities Regulatory Commission and will not obtain a license (SFC supports STO)
②The licensee can only provide services to professional investors
③If the exchange is granted a license, it should not engage in proprietary trading or proprietary market-making activities
④ Supplementary content of the "Warning Letter": virtual asset futures contracts are illegal
One of the more interesting and easily overlooked is the second clause, the licensee can only provide services to professional investors. So what does "professional investor" mean here? According to Chapter 571D "Securities and Futures (Professional Investors) Rules", the Hong Kong Securities Regulatory Commission defines professional investors as:
The threshold for personal assets reaching 8 million Hong Kong dollars is much higher than the threshold for A-share margin financing and securities lending and the Science and Technology Innovation Board. This alone will keep more than 99.9% of the leeks out of the currency circle.
Look at the third and fourth items: the current digital currency contract market accounts for about 50% of the overall market, and self-operated market-making and proprietary trading are currently the main source of income for exchanges. This means that if you want to obtain the supervision of the Hong Kong Securities Regulatory Commission, it is tantamount to breaking your own arms, which is thankless.
However, what the Hong Kong Securities Regulatory Commission brought in the "Position Statement" is not all bad news of strong supervision. The Securities Regulatory Commission has also thrown an olive branch to security tokens. Maybe you don’t understand the concept of “Security Token” very well. Let me briefly explain what a Security Token is.
Security token (security token) or STO (Security Token Offering) security token issuance is a new financing concept, which refers to financing through securitized tokens. As early as the end of 2017, the concept of STO was born in the United States. The US Securities Regulatory Commission SEC stipulates that if the issued tokens pass the "howey test", then such tokens will be identified as security tokens.
The Howey test requires that an "investment contract" must simultaneously meet the following four conditions:
1. Investors invest in cash or equivalents;
2. Invest in a common cause;
3. The investment is to obtain benefits;
4. Investors (coin buyers) do not participate in the operation, and profit depends on the efforts (operation) of the promoter or a third party.
If we judge the projects currently on the market according to the howey test, we will find that the tokens issued by most projects should be classified as "security tokens". But it is very interesting that project parties often try their best to disassociate themselves from security tokens, and exchanges do not like to see "security token" projects.
why? Because if it is classified as a security token, it means that the project will be regulated by the China Securities Regulatory Commission, financial information needs to be disclosed to the public, and legal responsibility is required if it breaks the law. If so, how can the boss make money?
In my opinion, the Hong Kong Securities Regulatory Commission's "Security Token" in the "Position Statement" shows Hong Kong's attitude towards the digital currency market: welcome to use blockchain as a new financing tool; if you want to engage in ICO to make money, goodbye 👋
From the perspective of the characteristics of STO itself, it is a product between IPO in the traditional financial market and ICO in the currency circle:
Compared with ICO, it protects the rights of investors and greatly reduces the probability of project parties defrauding money; compared with IPO, it lowers the entry threshold and saves the huge cost of listing, which has potential for the technology field The small and micro projects are more friendly.
In my understanding, investing in blockchain projects is equivalent to individual investors participating in venture capital (VC), where high risks and high returns coexist. The original intention of this free model of community autonomy is very good. However, in this model, the status of the project party and the investor is very different. No one knows where the funds raised by the project party go. Even if the project party announces it, there is no way to verify it. The abnormal relationship between investors and project parties has made the blockchain environment worse and worse-new projects that attract traffic are all funds.
The intervention of institutions such as the China Securities Regulatory Commission will alleviate the unequal relationship between investors and project parties to a certain extent. I have always been a supporter of blockchain compliance operations.
If we link the news of the Hong Kong Securities Regulatory Commission with DCEP, I personally think that the central bank is very likely to penetrate Hong Kong's financial system through DCEP, and then radiate to the world. Although with the rise of the mainland, Hong Kong's financial status is gradually declining, but there is one thing in Hong Kong's financial market that the mainland cannot match, that is, Hong Kong is recognized as an international free market, and its influence may not be as large as that of the mainland, but The scope of influence can spread to Southeast Asia and even Europe and the United States. If Hong Kong becomes the world's largest technology start-up financing market, and this market is dominated by DCEP, then the renminbi is really awesome.
Finally, I would like to summarize my personal views on the new regulations in Hong Kong. There are three points in total:
(1) The Hong Kong Securities Regulatory Commission does not welcome the current exchange model
(2) The blockchain market should be geared towards professional investors. Ordinary investors who want to participate can hand over their funds to a professional fund team for management
(3) STO may be an opportunity for the integration of the traditional financial market and the blockchain market
