Following the Securities and Futures Commission's (SFC) relaxation of rules for tokenized public fund secondary markets in April, China Southern Asset Management (Hong Kong) Limited (CSOP) has collaborated with HSBC and the licensed virtual asset exchange OSL to tokenize the "CSOP Hong Kong Dollar Money Market ETF" (3053.HK). This project represents a landmark initiative in the "top-tier asset manager + international banking giant + licensed VASP" model for Real World Asset (RWA) tokenization.
The tokenized shares are SFC-compliant security tokens falling under the "Non-Listed Tokenised" (T) category. The underlying assets remain the original Hong Kong dollar money fund holdings (short-term deposits, short-term bonds, interbank certificates of deposit). The tokens represent ownership of fund units and do not alter the underlying asset allocation.
In this project, CSOP acts as the product issuer and asset manager. HSBC serves as the tokenization agent, trustee, and transfer agent. OSL functions as the investment channel.
According to the requirements for the Non-Listed Tokenised (T) category, all qualified distributors can act as investment channels. Currently, OSL has secured exclusive distribution rights for the next six months. Whether more distributors will be added after this period depends on CSOP's decision.
Participation for Mainland Residents Typically Not Allowed
Hong Kong's "Non-Listed Tokenised" (T) category is open to both individual and institutional investors.
Basic requirements include being a Professional Investor (PI), which encompasses institutional investors with total assets of at least HK$40 million, individual investors with a portfolio of at least HK$8 million, as well as financial institutions or licensed corporations.
Retail investors must pass additional risk assessments to prove their risk tolerance matches the product's risk level.
Furthermore, the product is limited to Hong Kong residents or investors residing in jurisdictions where the product is registered/authorized. Residents of mainland China are typically not eligible to participate.
Eugene Cheung, Chief Commercial Officer of OSL Group, stated that the current focus is on meeting the demands of high-net-worth clients, such as family offices. The ability to invest in new RWA products using stablecoins would allow investors to switch investment targets at a low cost.
On-Chain Money Market Funds Can Use Stablecoins and Tokenized Deposits for Settlement, But Not Currently Supported
While the on-chain money market fund does not change its underlying asset allocation (short-term deposits, bonds, interbank CDs, etc.), its tokenized shares cannot be interchanged with traditional listed fund shares. The tokens solely represent ownership of the fund units.
Listed shares trade on the Hong Kong Stock Exchange, while tokenized shares circulate on OSL's secondary market, implementing a dual distribution channel of traditional and virtual asset exchanges.
Regarding investment methods, distinct from the traditional listed ETF itself, the SFC's new rules from April stipulate that on-chain ETFs support primary market subscription and redemption, allowing participation through licensed virtual asset platform secondary markets. They permit trading during nights and weekends, enabling 24/7 trading. Subscriptions and redemptions can be conducted in token form, with settlement permitted using regulated stablecoins and tokenized deposits.
However, as a Hong Kong dollar stablecoin has not yet been issued, the newly on-chain CSOP Hong Kong Dollar Money Market Fund currently only supports transactions in Hong Kong dollars. US dollar stablecoins compliant with U.S. regulations, such as USDT and USDC, cannot be used for purchases.
OSL's current official positioning and plan is to be a "global stablecoin payment and trading platform." A group spokesperson stated that "trading tokenized assets in Hong Kong's secondary market is also an important potential application scenario for compliant stablecoins. The transfer of traditional fiat currency is limited by bank operating hours and clearing/settlement cycles. Stablecoins support 24/7 real-time settlement, keeping funds directly on-chain, which helps improve capital allocation and turnover efficiency while reducing various friction costs associated with moving funds from off-chain to on-chain."
Nevertheless, whether investors will be allowed to purchase the CSOP Hong Kong Dollar Money Market Fund using stablecoins in the future depends on CSOP's decision.
Is HSBC's Agent Role Related to Its Stablecoin Issuer Status?
HSBC obtained a stablecoin issuer license from the Hong Kong Monetary Authority in April 2026. However, in this project, its role is as the tokenization agent, trustee, and transfer agent, which does not involve stablecoin issuance. The two roles are not directly related.
Stablecoins are digital payment tools with independent issuance and reserve mechanisms. HSBC's agent role in the project is responsible for converting ETF units into tokens on the blockchain.
However, the tokenization of Hong Kong's leading Hong Kong dollar money market funds may embody characteristics of on-chain wealth management: low-risk benchmark yields with high liquidity. In the long term, as Hong Kong's stablecoin ecosystem matures, tokenized Hong Kong dollar money fund units could potentially be considered for allocation as "reserve assets" under regulatory requirements, with HSBC as a stablecoin issuer.
Why Choose a Money Market Fund for On-Chain Tokenization?
The SFC issued two circulars on April 20th, namely the "Circular on Tokenisation of SFC-authorised Investment Products" and the "Circular on Secondary Market Trading of Tokenised SFC-authorised Investment Products" (collectively referred to as the "2026 Circulars"), replacing the previous guidelines from November 2023.
The new guidelines formally establish that SFC-authorized investment products can be tokenized, currently primarily open-end public funds, with money market funds being the main focus.
He Xian, Deputy Chief Executive Officer and Chief Market Officer of CSOP, stated that considering scale and popularity, the company decided to attempt tokenization with the simplest and most transparent product: a Hong Kong dollar money market fund.
As of March 2026, Hong Kong had 13 tokenized products offered to the public, with a total managed asset value of HK$10.7 billion, which is not a large scale. The asset management scale of the single CSOP Hong Kong Dollar Money Market ETF (3053.HK) that has gone on-chain alone reaches HK$7.45 billion.
Division of Rights and Responsibilities for Cross-Platform On-Chain Assets
On-chain products involve three parties: the custodian bank, the fund manager, and the VASP. However, there are no detailed rules for risk allocation. The underlying assets are custodied in traditional bank accounts, while the tokens are stored in the VASP's on-chain wallet. If the VASP's private key is stolen and on-chain tokens are lost, the underlying physical assets remain safe, but the investor's on-chain tokens will be lost.
Who compensates for theft losses—the asset manager, the custodian, or the exchange? There is no clear legal precedent under Hong Kong's current regulations. Existing rules only state that "substantive securities are governed by securities law," but the legal status of stolen on-chain assets remains a grey area.
On-Chain and Off-Chain Net Asset Values Are Not Synchronized
The fund calculates its traditional Net Asset Value (NAV) daily at market close. However, tokens trade 24/7. The intraday market price of tokens can be influenced by cryptocurrency market volatility, deviating from the fund's actual NAV, potentially leading to significant market discounts or premiums.
Although money market funds themselves are characterized by stable NAVs, the fund manager cannot intervene in real-time on intraday token prices. An on-chain money market fund might contradict the positioning of a stable NAV product.
Nevertheless, as this product is a "pilot project" to test the waters, regulators are highly likely to continuously monitor its operational data on OSL over six months to refine the rules for tokenized public funds. In the medium to long term, if liquidity and risks are controllable, tokenization of a full range of Hong Kong dollar and US dollar money market funds and short-term bond funds may also be implemented in batches.
However, if risks such as cross-platform and cross-market exposures emerge, regulators are likely to tighten retail access and restrict rules like 24/7 unrestricted redemptions.
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