Hong Kong’s Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority have announced their readiness to accept applications for spot crypto exchange-traded funds (ETFs).
The SFC and the Hong Kong Monetary Authority issued a circular yesterday outlining the revised policy for entities engaged in virtual asset-related activities. Beyond the existing crypto futures ETFs, the SFC expressed its preparedness to consider applications for the authorization of other funds exposing investors to virtual assets, including virtual asset spot ETFs.
Application requirements and guidelines
In a separate circular yesterday, the SFC laid out the stringent requirements for funds seeking authorization. These funds are expected to invest directly in spot virtual assets accessible to the Hong Kong public through SFC-licensed virtual asset trading platforms. The transactions conducted by such ETFs must take place exclusively through SFC-licensed crypto platforms or authorized financial institutions.
The circular allows for both in-kind and in-cash subscription and redemption for SFC-authorized spot virtual asset ETFs, providing flexibility for investors. Additionally, the SFC emphasized the importance of custody arrangements, specifying that the trustee or custodian must delegate its crypto custody function to an SFC-licensed virtual asset trading platform or comply with the crypto custody standards issued by the Hong Kong Monetary Authority.
For the valuation of spot virtual assets, the management companies of the fund are required to adopt an indexing approach based on virtual asset trade volume across major trading platforms. Notably, funds intending to expose more than 10% of their net asset value to crypto assets must engage in prior consultation with the SFC.
Hong Kong’s crypto-friendly stance
Unlike its neighboring Chinese mainland, which has taken a stricter stance on cryptocurrency trading and mining, Hong Kong has actively welcomed crypto firms this year. The city has positioned itself as an attractive hub for crypto businesses, even encouraging banks to collaborate with them.
In October 2022, Hong Kong authorities released a series of policy statements on cryptocurrencies, reinforcing the city’s standing as a global financial center. Moreover, in June, Hong Kong officially initiated its crypto licensing regime for virtual asset trading platforms, allowing licensed exchanges to offer retail trading services.
Jason Chan, a partner at Hong Kong-based law firm Howse Williams, noted that Hong Kong is exceptionally welcoming to the crypto industry, predicting that it could be among the first to approve a crypto spot ETF in a developed financial market.
SFC’s forward-thinking approach
Julia Leung, the Chief Executive Officer of Hong Kong’s SFC, stated in November that the regulator is actively evaluating spot crypto ETFs. Leung emphasized the regulator’s openness to proposals utilizing innovative technology to enhance efficiency and customer experience.
Currently, Hong Kong has listed several futures-based crypto ETFs, including the Samsung Bitcoin Futures Active ETF, CSOP Bitcoin Futures ETF, and CSOP Ether Futures ETF.
In summary, Hong Kong’s move to embrace spot crypto ETFs reflects its commitment to fostering a crypto-friendly environment. The regulatory clarity the SFC and the Hong Kong Monetary Authority provide sets the stage for potential growth in the region’s crypto investment industry.
