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By JSM
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The Securities and Futures Commission (SFC) rolled out its tokenisation-related regulatory framework in November 2023, focusing on primary dealing of tokenised SFC-authorised investment products (Tokenised Products).11
On 20 April 2026, the SFC launched a new regulatory framework to pilot 24/7 secondary trading of Tokenised Products by the public. The latest move is to catalyse the next phase of growth of Hong Kong’s digital asset ecosystem with robust investor safeguards.
Supported by potential use of regulated stablecoins and tokenised deposits to facilitate round-the-clock liquidity, secondary trading further integrates Tokenised Products with the broader Web3 ecosystem in Hong Kong.
The demand of investors reacting to an increasingly fast-moving and uncertain market environment can be better met.
Key takeaways
In its Circular on intermediaries engaging in tokenised securities-related activities, dated 2 November 202322, the SFC made two important clarifications:
Whether a tokenised security is a complex product or not is based on the assessment of the complexity of its underlying traditional security. The tokenisation of traditional securities, on its own, will not turn a non-complex traditional security to a complex product.
As tokenised securities are fundamentally traditional securities with a tokenisation wrapper, the SFC is of the view that there would be no need to impose a mandatory Professional Investor-only restriction on the distribution and marketing of security tokens.
The above clarifications smooth the path for the secondary trading of Tokenised Products. The SFC expects the initial batch of products to focus on tokenised money market funds. The SFC will review the operation of these funds and consider expanding the product scope in due course.
Drawing on the experiences of Hong Kong’s robust exchange-traded fund market and SFC-licensed virtual asset trading platform operators (SFC-licensed VATPs), the SFC prescribes the requirements for secondary trading in its Circular on secondary trading of tokenised SFC-authorised investment products dated 20 April 202633 and updates its Circular on tokenisation of SFC-authorised investment products44.
The requirements aim to support fair and orderly secondary trading of Tokenised Products. The requirements cover
trading channel;
fair pricing;
liquidity provision;
disclosure and client onboarding; and
notification.
The requirements are principally designed to facilitate on-platform secondary trading of SFC authorised open ended funds. The SFC may consider accepting other types of products with modified requirements as appropriate.
Trading channel
SFC-licensed VATPs:
May offer secondary trading of Tokenised Products retail investors via on-platform trading (i.e. on-screen auto-matching trading);
Should execute an on-platform trade of Tokenised Products for a client only if the client’s account has sufficient capital or product holdings of equivalent trading fungibility to cover that trade.
On-platform trading of Tokenised Products should follow the existing trading operation, rules and risk control measures applicable to SFC-licensed VATPs’ on-platform trading of virtual assets under the Guidelines for Virtual Asset Trading Operators (VATP Guidelines)55.
Tokenised Product providers and SFC-licensed VATPs:
Should work together to ensure that the on-platform trading arrangements are satisfactory, including operational processes, risk controls and system readiness.
Fair pricing
SFC-licensed VATPs should implement effective risk management and supervisory controls to ensure fair pricing of Tokenised Products for on-platform trading, including:
Alerting investors where the price to be executed would deviate significantly from the product’s real-time or near real-time indicative net asset value (NAV) per unit, based on a threshold reasonably set considering the product’s features (Price Deviation Alert). An SFC-licensed VATP should ensure that the Price Deviation Alert is displayed on its investor trading interface when the price to be executed deviates from the indicative NAV by more than the pre-set threshold;
Informing investors that they may choose to subscribe or redeem at NAV in the primary market instead of trading in the secondary market and the resulting implications including, where applicable, subscription or redemption in the primary market is subject to
normal trading hours;
the use of liquidity risk management tools; and
forward pricing that a subscription or redemption of fund units is executed at the next calculated NAV, which may be higher or lower than the prevailing secondary market prices; and
Implementing system controls, automated pre-trade and regular post-trade monitoring and other controls reasonably designed to prevent excessive price fluctuations and market manipulation, and to identify suspicious market manipulative or abusive activities.
An SFC-licensed corporation or registered institution which facilitates or directs its clients’ on-platform trading of Tokenised Products on SFC-licensed VATPs (Connecting Broker) should:
Display the Price Deviation Alert on its trading interface and inform investors about the primary market alternative discussed above. The SFC expects Connecting Brokers to comply with paragraph 18 and Schedule 7 of the Code of Conduct for Persons Licensed by or Registered with the Securities and Futures Commission.
Liquidity provision
A Tokenised Product provider should:
Use its best endeavours to arrange that each Tokenised Product has at least one market maker and that at least one market maker will give at least three months’ notice prior to terminating the market making arrangement;
Closely monitor the secondary trading activities and liquidity of its Tokenised Products, maintain close dialogue with market makers engaged by it, establish appropriate business contingency plans, and take necessary remedial actions in the best interests of investors;
Appoint SFC‑licensed corporations or registered institutions as distributors for its Tokenised Products to process creation and redemption requests from third-party investors, save for prescribed remote scenarios discussed in Question 1 of the Frequently Asked Questions on Exchange Traded Funds and Listed Funds66; and
Put in place arrangements with SFC-licensed VATPs to facilitate the transfer of Tokenised Products across primary and secondary markets.
An SFC-licensed VATP should:
Conduct due diligence and regular monitoring of the performance of all market makers of the Tokenised Products admitted to its platform against the agreed terms; and be reasonably satisfied that they remain competent and properly resourced to duly discharge the market making functions;
Ensure all such market makers maintain appropriate commitment to bid‑ask spreads, quote size of market making orders, minimum time for which a market making order is maintained and participation rates;
Liaise with such market makers to rectify when they fall short of the obligations; and
Specify in its arrangements with market makers:
the eligible criteria and obligations applicable to market making for Tokenised Products; and
arrangements in case a market maker is no longer available for a particular product.
Disclosure and client onboarding
Tokenised Product provider should ensure that the offering documents of a Tokenised Product offering secondary trading, including the product key facts statement, clearly set out:
Associated risks with secondary trading of the Tokenised Product, including:
liquidity risk
price deviation risk
price fragmentation risk
market maker reliance risk
Key information of:
trading channels
market making arrangements
indicative ranges of fee items applicable to secondary trading, and a remark directing investors to the relevant SFC-licensed VATP’s website for details on secondary training arrangements;
Circumstances for suspension of secondary trading of the Tokenised Product; and
The list of market makers for the Tokenised Product (with a remark directing investors to a website for the latest list), and any affiliated entities of the Tokenised Product provider acting as the market makers, along with disclosures on the associated potential conflicts of interest.
SFC-licensed VATPs and Connecting Brokers should maintain or provide access to online dedicated interfaces (e.g. website or app) to:
Disclose information of trading arrangements, including trading channel, market making arrangement, eligibility criteria of market makers, fee schedules and price quotation / bid-ask spread;
Disseminate real‑time or near‑real‑time indicative NAV per unit (typically updated at least every 15 seconds during trading hours), and last NAV per unit of the Tokenised Product with data source and update frequency; and
Prominently highlight the risks associated with secondary trading of the Tokenised Product, such as liquidity and price deviation risks, price fragmentation risks and market maker reliance risks.
SFC-licensed VATPs and Connection Brokers should obtain clients’ confirmation that they understand these risks, before onboarding them for secondary trading of the Tokenised Product.
Notification
Tokenised Product providers should:
Give the SFC early alerts of any untoward circumstances relating to the Tokenised Products under their management, including issues which may adversely affect operations, secondary trading and liquidity of their Tokenised Products; and
Immediately notify the SFC and investors as soon as practicable if:
primary or secondary trading of the Tokenised Products is suspended or ceases, or
market making activities cease, are disrupted or suspended.
These notifications should include an assessment of the impact on the Tokenised Products, remedial actions and an appropriate contingency plan.
Prior consultation, application and approval
Tokenised Product providers should:
Consult with the SFC in advance on new investment products with tokenisation features (whether primary dealing and/or secondary trading) that need the SFC’s authorisation;
Consult with and obtain prior approval from the SFC before introducing tokenisation features for existing SFC-authorised investment products (whether primary dealing and/or secondary trading); and
Consult with the SFC before making material changes to the secondary trading arrangement previously approved by the SFC, including changes to trading mechanism, Price Deviation Alert, market making arrangement and addition of trading channels.
Intermediaries engaging in secondary trading of Tokenised Products (including SFC-licensed VATPs and intermediaries that intend to engage in OTC secondary trading) should:
Notify and discuss their proposals with their case officers at the SFC (and also notify the HKMA where the intermediary is a registered institution) before engaging in secondary trading business for the first time;
The above prior notification should be made as soon as practicable, and the SFC expects the intermediaries to notify the SFC in parallel when the Tokenised Product providers make prior consultations with the SFC on the matters above; and
Notify their case officers at the SFC (and also notify the HKMA where the intermediary is a registered institution) if material changes are subsequently made to the arrangements communicated.
Further reading
Circular on secondary trading of tokenised SFC-authorised investment products (20 April 2026)
Circular on tokenisation of SFC-authorised investment products (20 April 2026)
Circular on tokenisation of SFC-authorised investment products (2 November 2023)
Circular on intermediaries engaging in tokenised securities-related activities (2 November 2023)
Gambling legislation: Brakes on Hong Kong’s basketball betting in light of growth of prediction markets
While the Hong Kong Government was set to roll out legal basketball betting in late 2026, it unexpectedly halted its implementation in mid-April 2026 allegedly due to concerns over the surge of prediction markets.
This marks a U-turn from the introduction and passing of the Betting Duty (Amendment) Bill 2025 in September 2025 to legalise basketball betting under a regulatory regime modelling the football betting regime.
Basketball betting
In June 2025, the Betting Duty (Amendment) Bill 202511 was gazetted with a view to introducing a regulatory framework with respect to basketball betting. One of the policy objectives is to combat illegal betting activities in Hong Kong.22 Following public consultation, the Bill was passed in September 2025.
The new regime on basketball betting closely mirrors that for football betting. Under the Betting Duty Ordinance (Cap. 108):
The Secretary for Home and Youth Affairs is granted power to issue a licence to a company to conduct betting on the results of, or contingencies relating to, basketball matches and to impose licensing conditions to minimize the negative impact of gambling on the public, including conditions relating to the categories of matches on which betting may be conducted.
On the calculation and collection of betting duty, just as football betting, the betting duty is charged at 50% on the net stake receipts derived from authorised betting on basketball matches.
However, the new regime was put on hold following the government’s announcement in mid-April 2026, citing that the introduction of basketball betting would be deferred pending a more in-depth review of the impact of the rapidly emerging overseas “prediction market” platforms, particularly those associated with illegal sports betting. The government stated that it was not an appropriate time to introduce a new betting product in Hong Kong, as there are concerns that more people may be drawn into illegal gambling.33
Meanwhile, other lawful gaming products in Hong Kong such as horse racing, football betting and Mark Six remain operative. Bearing in mind legal football betting has been in place for over two decades, it is not apparent how legalising another type of sport betting will promote illegal gambling. Nonetheless, in light of the government’s recent announcement, the timeline for implementing basketball betting regime remains uncertain.
Prediction markets?
Prediction market is a platform enabling bets to be placed on the outcomes of a future event, which can be a sport, political or economic event, and even weather-related changes. Bets are often placed by buying typically binary “yes” or “no” event contracts. The contract concludes once the future event is determined.
According to the Investor and Financial Education Council (IFEC), an independent public organisation and a subsidiary of the Securities and Futures Commission of Hong Kong (SFC), the trading price of a contract fluctuates and is influenced by the buying and selling activities of participants.44 Some platforms for prediction markets are built on blockchain and allow trading with cryptocurrencies.55
Hong Kong regulators caution: Prediction markets could cross into illegal gambling
In April 2026, the IFEC warned that trading activities in prediction markets may constitute illegal gambling.66 The authority further noted that products under the prediction markets are not protected by the Securities and Futures Ordinance or any laws and regulations administered by the SFC.
In particular, the Chief Executive of Hong Kong described prediction markets to be “more than gambling; it is to do with a lot of speculation that sometimes makes use of virtual assets.”77
Whether or not products traded on prediction markets fall under the ambit of the Gambling Ordinance (Cap. 148) has not been judicially tested in Hong Kong. The general position is that gaming involving an element of chance is unlawful unless licensed by the government or otherwise excepted under the statute. Betting with a bookmaker, whether or not the bet is received within or outside Hong Kong, is also prohibited.
Regulatory outlook
The government’s recent announcement reflects an unsettled legal status with respect to trading on the prediction markets. Specifically, the IFEC stated that “the trading activities and contracts of prediction markets are not investment products”.88 The precise boundary between high risk investment products and, at the opposite end of the spectrum, unlawful gambling remains to be delineated.
Companies that have adopted, or are exploring the integration of, prediction markets in their businesses should remain vigilant and take a proactive approach to identifying and managing regulatory exposure and stay closely attuned to shifts in the regulatory landscape.
In view of the recent halt of the legalisation of basketball betting, it is possible that an overhaul of the gaming legalisation which will cover both sports betting and prediction markets is under consideration.
Hong Kong court finds an employee’s profit share is “wages” and upholds constructive dismissal claim for non-payment
The Hong Kong Court of First Instance has confirmed in Caidao Capital Ltd v Harmen Christiaan Overdijk & Ors [2026] HKCFI 1326 that the definition of “wages” under the Employment Ordinance is broad enough to cover commission-only payments under a profit share remuneration structure and that withholding those payments can amount to constructive dismissal.
Employers who impose new conditions on commission payments, suspend them unilaterally or rely on ambiguous audit clauses to withhold remuneration face significant legal exposure.
Facts
In September 2014, the 1st and 2nd defendants (collectively, the “defendants”) joined the plaintiff company (the “Company”) as investment managers to set up and run a new wealth management team (the “WM Team”).
Their remuneration was “solely commission based and not fixed”. Revenue generated from clients they introduced was split “90/10” between the WM Team and the Company, with each Defendant receiving an equal share (known as the Transaction and Fee Revenue Share) of the WM Team’s net income on a quarterly basis (the “Commission”).
The Company never made those quarterly payments. Instead, in April 2015 the parties agreed that the Company would pay each defendant HK$100,000 per month (the “Monthly Payment”), to be set off against the Commission. At least 20 Monthly Payments were made from April 2015.
During an SFC audit of the Company, the Company’s CEO became dissatisfied with the compliance aspects of the defendants’ work and proposed to adjust the original “90/10” revenue split to “80/20”. In April 2016 the parties agreed to the proposed arrangement.
In early September 2016, the 1st defendant (“D1”) emailed the CEO asserting that the defendants had not been paid Commission in accordance with their employment agreements and that the parties should part ways. Shortly after, the defendants resigned by giving six months’ notice, but left their employment before the expiry of their notice period on 20 March 2017.
The following events occurred during the notice period:
On 28 November 2016, the CEO emailed the 2nd defendant (“D2”) stating that the defendants’ final Commission payments “[would] only be made upon satisfactory completion of independent audits” by a consultant engaged by the Company. D2 replied that this was “clear and agreed” (the “Nov 28 Emails”).
The Company then stopped the Monthly Payment to D2 in December 2016 and D1 in January 2017.
D1 claimed constructive dismissal on the basis that the Company had failed to pay his salary and unilaterally suspended the Monthly Payments.
D2 sought to buy out his remaining notice period and set off the amount of payment in lieu of notice against the Commission the Company owed him.
The Company sued for wrongful termination and claimed wages in lieu of notice. The Defendants denied the claims and counterclaimed for the outstanding Commission payments.
The decision
The court made three key findings:
1. Was Commission conditional on passing the audit? No.
The Company relied on the Nov 28 Emails to argue that Commission was conditional on passing an independent audit and that the defendants were not entitled to any Commission because the audit identified compliance deficiencies.
The court rejected this as “opportunistic” and held that it was unclear what “satisfactory completion of independent audits” means. In particular, the court noted that completing an audit and passing an audit are not the same thing. In any event, the defendants had never made clear that they were ready to risk losing all their Commission if the results of the audit were unsatisfactory. Indeed, the Judge found that it would be contrary to commercial common sense for the defendants to have agreed to receive nothing at all for work done for over two years.
The Nov 28 Emails were interpreted as addressing only the timing of the final commission payments, namely, payable after the audit’s completion and not conditional on its outcome.
2. Did the defendants earn “wages”? Yes.
The Company contended that because the defendants had no fixed salary and their remuneration was solely commission-based, they did not earn “wages”. It further argued that the Monthly Payments were only advances and not “wages”.
The court rejected this. The statutory definition of “wages” is broad and expressly includes commission. The focus is on the substance of what is being earned by the employee in respect of work done by him/her, and not how it is designated or calculated.
The Company’s argument also contradicted its own claim for wages in lieu of notice. The court held that both the Commission and Monthly Payments constituted wages, the latter being advances being paid in respect of ongoing work performed under the employment agreements.
3. Was D1 constructively dismissed? Yes.
Under section 10A of the Employment Ordinance, an employee may treat themselves as constructively dismissed where wages remain outstanding for one month or more from the date they fell due. This is in addition to any common law right to claim constructive dismissal for non-payment of wages.
Because the Company failed to pay D1’s January 2017 Monthly Payment (and his Commission after set-off), the court upheld D1’s constructive dismissal claim.
The Company’s claims were dismissed in their entirety. Both defendants were found to be entitled to their outstanding Commission.
Key takeaways for employers
Imposing new conditions on contractual payments (including commission) generally amounts to a variation of the contract of employment. Without an express unilateral variation clause, any proposed variation must satisfy the usual requirements of contract formation, namely, offer and acceptance (which may be inferred from conduct), intention to be legally bound and consideration.
Unilaterally imposing a change may result in underpayment or non-payment of contractual remuneration, which may give rise to both civil and criminal liabilities. In addition, this may constitute a repudiatory breach, entitling the employee to claim constructive dismissal.
To minimise the risk of disputes, any variation to the contract of employment (particularly in relation to remuneration arrangements) should be clearly documented in writing.
The judgment is available here.
An article on cyber risk governance, co-authored by Insurance partner Jenny Yu and associate Ken TL Lam, has recently been reprinted by CGj. The article explored directors’ personal accountability for regulatory breaches through the lens of “stepping stone liability.” Jenny and Ken outlined relevant law enforcement and regulatory trends across major jurisdictions, while providing insights into precautionary measures the board can adopt to mitigate associated risks.
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