London Metal Exchange Plans Tokenization of Off-Warrant Metal in Hong Kong

The London Metal Exchange (LME) is considering a significant shift in its operations by exploring the tokenization of off-warrant metal held in Hong Kong warehouses. This initiative aims to facilitate financing and create new revenue opportunities for the exchange.

During the Tokenised Markets and Money Conference on October 23, 2026, LME executive Hugo Brodie outlined the plans, indicating that a pilot program for tokenization is expected to begin in 2027. Currently, no tokens or tokenized products are in existence, as the initiative remains in the research phase.

Understanding Off-Warrant Metal

In the context of the LME, a warrant serves as the ownership document for metal stored in approved warehouses. Off-warrant metal refers to inventory that is stored outside of this formal system, lacking the standardized paperwork associated with exchange-registered stock. The LME's objectives for tokenization include:

• Ownership Transfers: Accelerating the transfer of title from seller to buyer.
• Verification: Simplifying the process of confirming the location and ownership of metal.
• Financing: Enhancing the usability of off-warrant stock as collateral for loans.
• Fraud Reduction: Mitigating risks associated with warehouse receipts.

Why Hong Kong?

The focus on Hong Kong is strategic, given the rapid increase in approved warehouse capacity, which has surpassed 100,000 tonnes as of May 2026. This growth is particularly relevant as demand for industrial metals rises, driven by advancements in artificial intelligence and data center construction.

Challenges Ahead

Despite the potential benefits, the LME acknowledges that establishing trust between buyers and sellers, along with clearly defined legal rights, is crucial for the success of tokenized assets. The exchange is currently awaiting further consultations to refine its strategy.

Future Considerations

Key aspects to monitor include the publication of consultation details regarding the legal recognition of token ownership, the specific warehouses and metals involved in the pilot, and whether lenders will engage in financing tokenized inventory.

New Developments in Hong Kong's Tokenized Money-Market Funds

• On October 26, 2026, Hong Kong’s Securities and Futures Commission approved secondary trading for two existing authorized tokenized money-market funds.
• The approved funds are ChinaAMC’s Hong Kong-dollar and US-dollar digital money-market funds, now available for trading 24/7 on a licensed virtual-asset platform.
• This marks a significant shift as investors can now trade interests in these funds in a regulated secondary-market environment.
• The SFC introduced a pilot framework in April 2026 to govern this trading channel, focusing on fair pricing, liquidity provision, and disclosures.
• The approval is specific to these products and should not be interpreted as a blanket permission for all tokenized investments to trade continuously.
• Market participants are advised to monitor trading spreads, price deviations, and market depth as the SFC considers expanding eligible products.