Introduction
Hong Kong’s Securities and Futures Commission (SFC) and Monetary Authority have recently announced their willingness to accept applications for spot crypto exchange-traded funds (ETFs), expanding beyond existing crypto futures ETFs. This move showcases Hong Kong’s commitment to creating a crypto-friendly environment and positioning itself as an attractive hub for cryptocurrency businesses.
Application Requirements and Guidelines
In a separate circular, the SFC laid out stringent requirements for funds seeking authorization. These funds must directly invest in spot virtual assets accessible to the Hong Kong public through SFC-licensed virtual asset trading platforms. The circular permits both in-kind and in-cash subscription and redemption for authorized spot virtual asset ETFs, offering flexibility to 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 crypto custody standards issued by the Hong Kong Monetary Authority. For valuing spot virtual assets, the fund management companies must adopt an indexing approach based on virtual asset trade volume across major trading platforms. Funds aiming to expose over 10% of their net asset value to crypto assets must engage in prior consultation with the SFC.
Hong Kong’s Crypto-Friendly Stance
Hong Kong has taken a more welcoming approach to crypto firms compared to its mainland Chinese neighbors, which have implemented stricter regulations on cryptocurrency trading and mining. The city has actively positioned itself as a global financial center that embraces the cryptocurrency industry. In October 2022, Hong Kong authorities released a series of policy statements on cryptocurrencies, further solidifying their commitment. Additionally, in June, Hong Kong initiated its crypto licensing regime for virtual asset trading platforms, enabling licensed exchanges to offer retail trading services.According to Jason Chan, a partner at Howse Williams law firm in Hong Kong, the city’s crypto-friendly environment could make it one of the first in a developed financial market to approve a crypto spot ETF.
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. As of now, Hong Kong has already listed several futures-based crypto ETFs, including the Samsung Bitcoin Futures Active ETF, CSOP Bitcoin Futures ETF, and CSOP Ether Futures ETF.
In conclusion, Hong Kong’s decision to embrace spot crypto ETFs demonstrates its dedication to fostering a supportive environment for the crypto industry.