The Securities and Futures Commission (SFC) of Hong Kong simultaneously published two tokenization-related circulars on April 20, 2026. Based on 26EC22 (Chinese), which focuses on “secondary trading of tokenized SFC-authorized investment products on regulated platforms,” it is the first complete framework among major global jurisdictions for regulating secondary trading of tokenized funds on standardized platforms; 26EC23 (English) revises the requirements for primary market subscriptions and redemptions. Together with the news release 26PR59 issued on the same day, they form a complete policy package. From a practical perspective, this article analyzes the core rules in the two circulars.
26EC23: Responsibilities of product providers for primary market subscriptions and redemptions
26EC23 clearly allows primary dealing—subscriptions and redemptions (primary dealing, i.e., subscription and redemption of fund units)—on the condition of a “see-through approach,” meaning the underlying products must satisfy all existing product authorization requirements, plus additional safeguards from the tokenization arrangements. The core responsibilities of the Product Provider include:
First, even if the tokenized functions are outsourced, the product provider must still bear final responsibility for the “robustness of management and operations” and “ownership records,” and must not shift responsibility through outsourcing. Second, the use of public-permissionless blockchains is prohibited—unless additional controls are introduced (for example, restricting transferability through permissioned tokens). In effect, this rules out issuing pure public tokenized products directly on Ethereum and Solana mainnets, and instead steers the technical architecture toward consortium chains or permissioned designs.
Third, smart contract review and third-party verification: the SFC may require the product provider to present high-confidence security assessments for the smart contracts, obtain third-party audits or verification, and—when necessary—provide legal opinion letters. Fourth, at least one qualified employee: the product provider must confirm to the SFC that at least one internal employee with relevant experience and professional knowledge is available to operate or supervise the tokenization arrangements.
The pre-consultation procedure is also made explicit: new tokenized products must be subject to pre-consultation with the SFC; if existing products introduce tokenization functions or make material changes, they must be pre-consulted and approved.
26EC22: Four-tier rules for secondary market trading
26EC22 is the first to open the door to secondary trading of tokenized products on VATP, with rules structured into four tiers:
Trading venue: retail investors conduct secondary buy/sell trading through screen-based automated matching on a VATP licensed by the SFC. Before executing trades, the customer must have sufficient funds in the platform account or holdings equivalent to those that can be exchanged. Before the product is launched, the product provider and the VATP must test the trading arrangements (operational processes, risk monitoring, and system readiness) to the SFC’s satisfaction.
Fair pricing: the core mechanism is the “Price Deviation Alert”—when the proposed execution price materially deviates from the real-time or near real-time indicative net asset value per unit (iNAV) of the underlying asset, the VATP should display an alert on the investor trading interface. The VATP must also explain the alternative option to “subscribe/redeem in the primary market at the asset’s net asset value,” and implement system monitoring (trade volatility limits, cool-down period, and market manipulation detection). The introducing broker (the intermediary that transmits client orders to the VATP) must also display the same alert on its trading interface.
Liquidity provision: this is the most critical market-structure regulation under 26EC22. Each tokenized product must have at least one market maker; before a market maker terminates its services, it must give at least three months’ advance notice to avoid suddenly losing liquidity. The product provider must closely monitor trading activity and liquidity, and formulate contingency plans (whether to temporarily halt secondary trading when primary trading is suspended, and whether to activate a backup market maker). The VATP is responsible for conducting due diligence on the market makers admitted to the approved platform, and for regularly monitoring the bid-ask spreads/quoted value/the shortest minimum time for maintaining quotes/participation rate, and it must specify qualification criteria and exit arrangements in the agreement.
Disclosure: the offering documents must set out risks related to secondary market trading (liquidity, price deviation, price fragmentation, reliance on market makers), the operating process and settlement arrangements of the trading venue, the list of market makers, and potential conflicts of interest. The VATP and the introducing broker must provide online interface disclosures detailing the secondary trading arrangements, real-time iNAV (typically updated at least once every 15 seconds), and the latest official net asset value. Before opening an account, clients must confirm that they have understood the risks above.
Market maker regime: key risk management for tokenized funds
The market maker is the cornerstone of the 26EC22 framework. The market maker mechanism for traditional ETFs is relatively mature, but in a tokenized fund trading platform that may operate 24×7, the responsibilities of market makers are further amplified. The circulars explicitly require that market makers must continuously comply with the standards set by the VATP (bid-ask spreads, quoted value, minimum quote maintenance time, participation rate). If they fail to perform their responsibilities, the VATP should proactively contact them for correction. If a market maker no longer provides services for a particular product, there must be a clear exit arrangement.
If a product provider provides remuneration or incentives to market makers, it must comply with the “Code of Conduct for Licensed Persons or Registered Persons of the SFC” and the “Securities and Futures Ordinance,” and must disclose the remuneration arrangements in the offering documents to avoid controversies over market integrity. This level of regulatory prescription aligns with the market maker regime in traditional securities markets, meaning that although tokenized funds innovate in terms of technical architecture, market rules are not watered down in any way.
Notification mechanisms and event management
Both circulars emphasize notification obligations. Product providers must notify the SFC at an early stage of any abnormal circumstances that may adversely affect tokenized products, including but not limited to receiving a resignation notice from the last market maker. If primary or secondary market trading is terminated/suspended, or if market maker activity is interrupted, the product provider should notify the SFC and investors as soon as possible, together with an event assessment and a remediation action plan. Intermediaries (including VATP, and intermediaries that intend to engage in over-the-counter secondary trading of tokenized products) must notify the SFC’s case officer before commencing business for the first time; material changes must also be notified. Registered institutions must additionally notify the HKMA.
Practical implications for the industry, law firms, and compliance
For product providers (fund companies, asset managers), the launch timeline for tokenized products is extended—existing products must consult first and then apply for approval, while new products must pass two layers of review. At the same time, internal teams must cultivate qualified employees with experience in blockchain and smart contracts; this kind of talent remains scarce in the Hong Kong market, which may drive up compensation.
For VATP operators, the business scope is officially expanded from pure virtual asset activities to tokenized traditional financial products. In the short term, they must build: a real-time iNAV calculation and distribution system, a price deviation alert interface, market maker due diligence procedures, and bidirectional notification channels with product providers. While investment in technology and compliance is significant, the market space is clearly expanding.
For law firms and compliance advisors, the two circulars create clear new business opportunities: (1) the legal opinion letter for a tokenized product application by the product provider (Article 16 of 26EC23), (2) the market maker agreement and pre-consultation documents between the VATP and the product provider, and (3) assistance with smart contract audit reports and security assessments. For law firms in Taiwan and Singapore, if this framework is referenced by other jurisdictions, it will form a new market for regulatory legal services for tokenization across Asia-Pacific.
For players in Taiwan, even though Taiwan’s VASP regulations still focus on foundational licensing and stablecoins, the Hong Kong version can already serve as a regulatory template for tokenized finance in Asia-Pacific. If, in the future, the Financial Supervisory Commission begins to deliberate a framework for tokenized securities/funds, the market maker regime, the price deviation alert, and real-time iNAV disclosure designs in 26EC22/26EC23 are very likely to be referenced. Local VASP operators (for example, BitoPro, MAX, HOYA BIT, XREX), if they want to move into the tokenized fund business in the future, this is the best time to track Hong Kong implementation cases and build the relevant technical and compliance capabilities.
This article, “Hong Kong SFC releases two tokenization circulars on the same day (26EC22/26EC23): Full analysis of VATP secondary trading and primary subscription/redemption rules,” first appeared on Lianxing News ABMedia.
