The ALB Hong Kong Law Awards is one of the most prestigious and longest-running awards in Hong Kong’s legal community, recognizing the outstanding performance by private practitioners and in-house teams in the region.

Our firm was named finalists in five award categories: “Civil Litigation Law Firm of the Year”, “International Arbitration Law Firm of the Year”, “Matrimonial and Family Law Firm of the Year”, “Private Wealth Law Firm of the Year” and “Hong Kong Law Firm of the Year”. In addition, Ms. Chui was also nominated as “Woman Lawyer of the Year, whilst our Partner Gordon Tsang, was nominated as “Young Lawyer of the Year”.

We would like to take this opportunity to thank ALB for organizing such an incredible event and congratulate all the winners and finalists.

Congratulations to Ms. Chui on this well-deserved recognition!

Throughout the programme, our interns had the opportunity to delve deep into the inner workings of a full-service law firm. They participated in department seat rotations, department talks, and networking sessions.

We were impressed by the enthusiasm and dedication displayed by our interns. To our interns, we hope you enjoyed your time with us and found the experience both enriching and rewarding. We wish you all the very best in your legal studies and future endeavours!

For more information about our internship programme, please contact Ms. Lai Lam, Mr. Rodney Teoh, Ms. Milly Hung or Ms. Janice Chin.

Overview of Project Evergreen

Project Evergreen used distributed ledger technology (“DLT”) to settle, on a delivery-versus-payment (“DvP”) basis, securities tokens representing beneficial interests in the green bond issued by the Government and cash tokens representing a claim for fiat Hong Kong dollars against the HKMA.  The tokenised green bonds were offered under the Government Green Bond Programme, and its proceeds will be allocated to finance and/or refinance projects that provide environmental benefits and support the sustainable development of Hong Kong.

Workflow of tokenised green bond issuance

The following diagram extracted from the Report summarised the workflow of primary issuance in Project Evergreen settled on a DvP basis:

(Source: Report on Bond Tokenisation in Hong Kong, HKMA)

Advantages of adopting DLT in bond issuance

In the course of implementing Project Evergreen, the HKMA observed that DLT can potentially generate the following efficiencies during a bond issuance:

Paperless creation	A physical global certificate is no longer required, saving man-hours and eliminating the risk of manual processing error
Facilitate interaction between different parties on a common DLT platform	Bringing all different parties onto a common platform with an immutable single source of truth, supporting multi-party workflows with participant specific authorisation, enabling real-time verification and signatories
Atomic DvP settlement	A common DLT platform for bond transfer and cash payment (instead of separate channels), allowing settlement to be done simultaneously on a DvP basis, thereby reducing settlement delay and risk
End-to-end DLT adoption across the bond lifecycle	The use of DLT can substantially reduce multiple manual processing, lower servicing time and costs and remove the need for synchronisation between different channels, achieving significant operational improvement
Enhanced transparency	DLT enables real-time data synchronisation across different parties, ensuring transparency and consistency whilst enabling greater privacy from other platform participants

Deal Structuring Considerations

Drawing on the experience from Project Evergreen, the HKMA highlighted the following points for a potential tokenised bond issuer to consider when structuring a deal:

Securities leg	Applicability of existing securities regulations Securities and Futures Ordinance (Cap. 571)(“SFO”)’s existing licensing regime for regulated activities and securities offering regime would apply to the issuance or distribution of digital bonds The prospectus requirements under the Companies (Winding Up and Miscellaneous Provisions) Ordinance (Cap. 32) would also apply to the digital bonds Choosing between “native” and “non-native” tokenised issuance Native issuance: Bonds are issued directly on a DLT platform without involving the conventional system of a central securities depository (“CSD”), which enhances the degree of integration with the DLT platform, and may reduce the need for intermediaries (e.g. conventional CSDs, custodians and registrars), and thus lower the transaction costs and operational risks Non-native issuance: As in Project Evergreen, tokenised issuance involved the conventional system of a CSD, offering greater familiarity with the prevailing market practice Form of the bond Neither the SFO, the Companies Ordinance (Cap. 622), nor the Payment Systems and Stored Value Facilities Ordinance (Cap. 584)(“PSSVFO”) prescribe a form which debt securities must take at issuance
Payment leg	Payments can be made on the DLT platform or off-platform with fiat cash.  On-chain payments for the digital bond principal and interest may be made in the form of central bank digital currency, or digital tokens which are native or compatible with the DLT platform where the digital bonds are issued and/or recorded, enabling a faster and simpler payment process
Settlement finality	“Settlement finality” means the discharge of an obligation by a transfer of funds and a transfer of securities that have become irrevocable and unconditional.  In Hong Kong, settlement finality can be achieved by fulfilling the relevant statutory requirements under the PSSVFO (in the case of a designated clearing and settlement system) or by contractual agreement
Other considerations	Secondary trading of the tokenised bond If trading functionality can be included on a DLT platform, it can enhance liquidity and transparency of secondary market, offer standardised and automated processes and protocols, and may reduce counterparty and settlement risks Whether to list the tokenised bond Not all digital bonds are listed on conventional exchanges due to the lack of connectivity between relevant conventional exchanges and DLT platforms

Potential of DLT in Bond Markets

Although not put to test in Project Evergreen, the HKMA nevertheless suggested a number of aspects where DLT may develop in bond markets. Apart from exploring further use cases utilising different DLT platforms and currencies, the HKMA expressed the need to address the issue of fragmentation as Project Evergreen deploys a digital platform that operates independently. It was suggested that connectivity can be enhanced (1) between different DLT platforms; (2) between DLT platforms and conventional systems; and (3) between DLT platforms and CSDs. Moreover, the HKMA recommended that the legal and regulatory framework be fine-tuned to accommodate full digitalisation of the processes and listing and settlement of tokenised bonds.

Analysis and Takeaways

The launch of Project Evergreen demonstrates the possibility of deploying DLT in a real-life capital market transaction under the existing Hong Kong legal framework and symbolised a milestone by introducing tokenisation to the Hong Kong bond market. By adopting DLT in bond issuance, efficiency, liquidity and transparency in the market could be enhanced, hence improving the confidence of investors in the tokenisation of bonds. The HKMA and the Government will continue to collaborate with the industry to shape the way forward for tokenised bond in Hong Kong.

Please contact our Partner Mr. Rodney Teoh for any enquiries or further information.

This news update is for information purposes only. Its content does not constitute legal advice and should not be treated as such. Stevenson, Wong & Co. will not be liable to you in respect of any special, indirect or consequential loss or damage arising from or in connection with any decision made, action or inaction taken in reliance on the information set out herein.