Tokenized funds are no longer limited to subscriptions and redemptions. Hong Kong is bringing traditional public mutual funds into an all-weather trading scenario, filling a long-standing gap in the digital asset market.

On October 26, the Hong Kong Securities and Futures Commission (SFC) approved the first batch of tokenized funds available to the public to be traded in the secondary market on licensed virtual asset trading platforms. Two tokenized money market funds under Huaxia Fund (Hong Kong) — the Hong Kong dollar fund and the US dollar fund — officially offered 24/7 trading from that day.

This is the world's first public offering of tokenized funds allowed to trade on regulated virtual asset trading platforms in the secondary market. Investors can buy and sell the related fund tokens on licensed platforms instead of having to adjust their positions only through traditional fund subscription and redemption channels.

What has changed from subscriptions and redemptions to secondary trading?

Previously, the main advantage of tokenized funds lay in recording and managing fund shares in the form of blockchain tokens, but investors' exit methods still primarily relied on the fund's original subscription and redemption arrangements.

The secondary market trading changes this. Investors can buy and sell fund tokens on the platform with other market participants, and trading hours are no longer entirely restricted by the operating hours of traditional financial markets.

Both products approved this time are money market funds, priced in Hong Kong dollars and US dollars respectively. The relevant products can be traded around the clock on licensed virtual asset trading platforms, providing investors with a more flexible way to adjust their positions.

However, it should be noted that 24/7 trading does not mean transactions can occur at net asset value any time. Trading prices may still be affected by supply and demand, liquidity, and the opening hours of the underlying asset market.

Why is Hong Kong pushing this step forward?

In April this year, the Hong Kong SFC announced a regulatory framework for the secondary market trading of tokenized recognized investment products, specifying the trading arrangements, pricing fairness, liquidity provision, information disclosure, and investor protection requirements for relevant platforms.

The formal approval of the first products in October signifies that this regulatory framework is beginning to enter the actual operational phase.

Its significance is not merely to add two tradable products but to attempt to connect traditional financial products with digital asset trading infrastructure. Traditional funds are responsible for managing the underlying assets, blockchain records tokenized shares, licensed platforms provide trading channels, and the regulatory framework constrains trading order and risk management.

The Hong Kong SFC stated that it will closely monitor relevant trading activities and consider expanding the product range in a timely manner based on market developments and actual operating experience.

The next step for tokenized finance is not just issuing more assets

In the past year, the development focus of tokenized funds has primarily been on product issuance, asset management scale growth, and the application of blockchain technology. However, if investors holding tokenized assets still lack convenient trading channels, their actual utility will be limited.

Secondary market trading provides a new direction: allowing tokenized assets not only to be issued and held but also to continue circulating in a compliant market environment.

Several questions still need to be validated in the next phase, including whether 24/7 trading can form sufficient market depth, how to maintain reasonable prices during non-traditional trading hours, and whether investors can balance convenience in buying and selling with the liquidity of the underlying assets.

The key step taken by Hong Kong this time is to transition tokenized funds from "asset on-chain" to "trading on-chain." If subsequent products can continue to expand and trading liquidity matures gradually, tokenization could evolve from a method of asset issuance to a financial infrastructure connecting traditional asset management with the digital asset market.

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