Hong Kong Prepares the Way to Allow Retail Trading of Tokenized Securities

The Hong Kong Securities and Futures Commission (SFC) has made significant progress in its plans to allow retail investors access to new investment opportunities. In a move that reflects the territory’s regulatory openness toward digital assets, the SFC is actively evaluating how to expand access to tokenized securities, enabling more investors to participate in this emerging market.

Current Situation: Limitations for Retail Investors

So far, retail investors in Hong Kong face significant restrictions. They can only subscribe to and redeem tokenized funds in the primary market, which limits their investment options and creates dependence on the issuer. This limitation acts as a bottleneck for those wishing to diversify their portfolios with tokenized assets, creating a gap between institutional and retail investors in terms of access to innovative investment opportunities.

New Direction: Secondary Trading on Regulated Platforms

The SFC is considering allowing licensed virtual asset trading platforms (VATPs) to offer secondary trading services for tokenized securities. According to information revealed by ChainCatcher, Lo Hoi-sze, Deputy Head of the SFC’s Intermediaries Division, confirmed that authorities are reviewing operational requirements, assessing risks, and designing control mechanisms. The regulatory body is also in the process of drafting related circulars to regulate these services.

The SFC’s interest is particularly focused on enabling the trading of tokenized money market funds on authorized VATPs. This initiative aims to facilitate a smooth and controlled secondary market, allowing retail investors to transact without compromising regulatory protections.

Regulatory Framework: Principles of Equivalence

Lo Hoi-sze emphasized a fundamental principle guiding the SFC’s regulatory vision: tokenized securities should be considered essentially equivalent to traditional securities, with the only difference being an added technological layer. This means the regulatory principle of “same business, same risk, same rules” will apply, ensuring that technological innovation does not erode consumer protection standards.

The SFC has already initiated preliminary consultations with industry stakeholders to gather input on specific requirements. This consultative approach reflects Hong Kong’s commitment to developing a regulatory ecosystem that is both innovative and secure for retail investors seeking access to these new financial instruments.