Hong Kong Investor Education Centre Warns of Risks in Secondary Market Trading of Tokenized Funds: NAV May See Significant Premiums or Discounts

The Hong Kong Investor and Financial Education Council (IEC) has issued a warning regarding the risks of buying and selling tokenized funds in the secondary market, including price discrepancy/trading risk, liquidity risk, price fragmentation risk, and reliance on market maker risk. Tokenized funds trading on virtual asset trading platforms may trade at significant premiums or discounts to their net asset value.

The Hong Kong IEC pointed out that investors should understand the underlying fund, including its investment objectives, strategies, characteristics, operations, and related investment risks, as well as the tokenization arrangements, including whether transactions are ultimately settled on-chain or off-chain and the associated risks. Investors should also pay attention to information on trading channels, market maker arrangements, applicable fees, circumstances under which trading may be suspended, risks of secondary market trading, the option to subscribe for or redeem tokenized fund units at net asset value, and the related implications.