Hong Kong Investment Commission Warns of Secondary Market Trading Risks for Tokenized Funds

On October 28, the Hong Kong Investors and Financial Educators Committee (IEC) issued an advisory highlighting the risks of trading tokenized funds on the secondary market, including price discrepancy/trading risk, liquidity risk, price fragmentation risk, and market maker dependency risk.

The Hong Kong IEC stated that investors should thoroughly understand the underlying funds, including their investment objectives, strategies, characteristics, operations, and related investment risks, as well as the tokenization arrangements, such as whether transactions are ultimately settled on-chain or off-chain and the associated risks. Investors should also pay attention to details regarding trading platforms, market maker arrangements, applicable fees, circumstances that may lead to trading suspensions, secondary market trading risks, the option to subscribe for or redeem tokenized fund units at net asset value, and their related implications.