Anthony WALLACE

Hong Kong's Ensemble opens the way for round-the-clock settlement

The Hong Kong Monetary Authority said on the 2nd of this month that Ensemble's trial phase, EnsembleTX, had entered a new stage, using tokenised central bank money (CeBM) to support 24/7 settlement of tokenised deposit transactions between banks. The number of participating tokenised deposit banks has risen from the initial seven last year to 12, while the number of other industry pioneers has increased to 20.

About a week earlier, on October 26, the Securities and Futures Commission approved tokenised units of two digital money market funds in Hong Kong dollar and US dollar managed by China Asset Management (Hong Kong) to be traded around the clock on PantherTrade, the licensed virtual asset trading platform operated by Futu. The funds can be traded at weekends and on public holidays.

The two arrangements were introduced within a week of each other. Settlement on the funding side can now operate around the clock, while tokenised fund units can also change hands at any time. The tokenisation ecosystem jointly promoted by the two regulators is moving from sandbox trials towards commercial use.

Where does money get stuck after markets close?

Retail transfers in Hong Kong have long operated in real time: the Faster Payment System is available around the clock, while high-value interbank payments are settled individually in real time through the Hong Kong dollar Real Time Gross Settlement system. The real time constraints are at the wholesale and investment levels. High-value interbank settlement remains subject to system operating hours, while traditional fund subscriptions and redemptions have cut-off times, with funds often taking one to several business days to arrive. After Friday evening, institutional cash and fund units are, in effect, put on hold until Monday.

Tokenised deposits are the digital form of commercial bank deposits. They remain liabilities of the issuing bank to its customers, with no change to the amount, interest or depositor rights. What changes is the method of record-keeping: deposits are recorded as tokens on a blockchain and can be transferred instantly through smart contracts. When customers move tokenised deposits between banks, the banks need to use central bank money for final settlement. When EnsembleTX was launched last November, this step relied on the Hong Kong dollar RTGS system and was therefore still subject to its operating hours. With the switch to tokenised central bank money, interbank settlement can now be completed instantly outside traditional operating hours.

HKMA chief executive Eddie Yue Wai-man said the Ensemble project had moved from experimentation and trials to a new phase of promoting commercial applications for tokenisation in just two years. He expected the commercialisation of tokenised deposits and digital assets to accelerate further.

Standard Chartered Hong Kong announced on the same day that it was launching a tokenised deposit service for corporate customers in Hong Kong, making the city the group's first market to offer the service. Standard Chartered said China Asset Management (Hong Kong), Finloop and PantherTrade had completed live transactions involving tokenised deposits and the settlement of tokenised money market funds through EnsembleTX.

Deposits and funds: two lines that have not yet formed a complete loop

If EnsembleTX addresses how money can be moved more quickly, the SFC's approval addresses where that money can go. Together, the concept is straightforward: institutions use tokenised deposits to subscribe to tokenised money market funds and earn short-term returns, then convert the funds back into deposits when cash is needed. The process avoids traditional interbank instructions and overnight waiting.

There is already a practical example. Early transactions when EnsembleTX was launched last year included the use of tokenised deposits to help Futu Securities International (Hong Kong) subscribe to China Asset Management (Hong Kong)'s tokenised money market funds.

However, the current round-the-clock arrangements still have several limitations and should not be understood to mean that deposits and funds can circulate seamlessly at weekends:

  • Secondary-market trading operates on a single platform: Tokenised fund units on PantherTrade cannot be withdrawn to an external platform. Legal ownership remains recorded in the fund's off-chain register, making this a closed, platform-based order-book market.
  • 24/7 access is limited to the secondary market: Primary-market subscriptions and redemptions with the fund issuer are still processed during the original trading hours.
  • The two lines have not been confirmed as connected: Public information has not confirmed whether secondary-market trades are already settled using tokenised deposits on EnsembleTX. When the SFC launched the trial framework, it said only that regulated stablecoins and tokenised deposits could "potentially" be used for trading in the future.

According to SFC data, 13 tokenised products were offered to the public in Hong Kong as of March this year. Assets under management in the tokenised category had increased about sevenfold over the preceding year to HK$10.7 billion. Ledger Insights reported that the China Asset Management digital money market funds approved for round-the-clock trading had about US$660 million in assets under management, with the retail class accounting for about 16 per cent.

Singapore and Dubai take different approaches

Hong Kong is not the only financial centre promoting tokenisation. The Monetary Authority of Singapore launched Project Guardian in May 2022 to work with the industry on applications for asset tokenisation and decentralised finance. Dubai, meanwhile, has established a dedicated crypto-asset regulatory framework through its Virtual Assets Regulatory Authority, attracting a number of crypto-native companies.

Hong Kong's approach is to have regulators lead the creation of shared infrastructure, allowing licensed banks and asset managers to compete under the same set of rules. This lowers the cost of experimentation and compliance risks for individual institutions. But when most institutions use the same infrastructure, technology alone becomes less effective as a point of differentiation. Competition will focus on which players can first make high-value use cases work, attract corporate customers holding substantial cash and demonstrate that 24/7 settlement can genuinely improve balance-sheet efficiency.

The participant list shows that EnsembleTX is not limited to traditional banks and asset managers. The initial industry pioneers include Ant Digital Technologies, Ant International, Hong Kong Exchanges and Clearing, as well as a number of technology and digital-asset companies. The extent of these technology companies' actual involvement remains to be seen.

What to watch next

The following indicators will be worth watching in assessing whether Ensemble has genuinely changed the game:

  1. Transaction volumes: The HKMA's latest announcement did not disclose transaction volumes or outstanding tokenised deposits, saying only that it expected volumes to expand further. It will be difficult to verify genuine demand until the figures are made public.
  2. Diversity of participating institutions: The HKMA has published the list of participating banks, which currently consists mainly of mainland Chinese banks operating locally and large international banks. Whether more regional small and medium-sized banks and offshore counterparties can be brought in will determine whether the system can develop into a cross-border settlement hub. Financial Secretary Paul Chan Mo-po said banks could eventually also use tokenised deposits for cross-border payments.
  3. Buyer profile: Will round-the-clock trading in tokenised money market funds be driven by local professional investors, international institutions, or wealth-management clients from the mainland and Southeast Asia? The nature of the capital will directly affect the products' risk pricing and design.
  4. Regulatory spillover: Could Hong Kong's framework become a reference for other Asian jurisdictions? If Singapore and Japan introduce interoperable arrangements, the pattern of capital flows in the region could change.
  5. Cost comparison: Can the actual cost of round-the-clock blockchain settlement be significantly lower than that of traditional correspondent banking networks, which use SWIFT to transmit instructions, or the Cross-Border Interbank Payment System (CIPS) for renminbi payments? This will be a key threshold for businesses deciding whether to switch.

The Ensemble project has moved from experimentation to commercial use in just two years, but widespread adoption remains some way off.