Hong Kong is gearing up to potentially allow spot crypto exchange-traded funds (ETFs), as confirmed by the Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority.
They announced a review of their policies for entities engaging in virtual asset-related activities, expressing readiness to accept applications for authorization of funds, including virtual asset spot exchange-traded funds (VA spot ETFs). This move expands beyond existing crypto futures ETFs, reflecting Hong Kong's openness to diversifying investment options in the digital asset space.
The SFC has outlined requirements for funds to directly invest in spot virtual asset tokens traded on licensed virtual asset trading platforms, signalling a step towards fostering a more robust regulatory framework for cryptocurrency-related financial products in the region.
The Securities and Futures Commission (SFC) in Hong Kong has specified guidelines for spot virtual asset exchange-traded funds (VA spot ETFs). According to the circular, transactions by these ETFs involving cryptocurrencies must occur through SFC-licensed crypto platforms or authorized financial institutions.
The SFC allows both in-kind and in-cash subscription and redemption for authorized spot VA ETFs. The custody of crypto assets in the fund should be delegated only to an SFC-licensed virtual asset trading platform (VATP) or one meeting the crypto custody standards set by the Hong Kong Monetary Authority (HKMA).
For spot virtual asset valuation, fund management companies are advised to adopt an indexing approach based on trade volume across major platforms. Consultation with the SFC is necessary for funds intending to expose over 10% of their net asset value to cryptocurrencies. The SFC had issued warnings about suspected crypto frauds in the past
In contrast to China's stringent stance on cryptocurrency, Hong Kong has embraced crypto firms, even encouraging banks to collaborate with them. Jason Chan from the law firm Howse Williams noted Hong Kong's welcoming attitude, suggesting it could be among the first to approve a crypto spot ETF in a developed financial market.
In October 2022, Hong Kong strengthened its crypto position with policy statements, and in June, it initiated a licensing regime for virtual asset trading platforms. The Securities and Futures Commission (SFC) is actively assessing spot crypto ETFs, aligning with Hong Kong's commitment to innovation and efficiency in the crypto space. The region already lists various futures-based crypto ETFs, signaling its proactive approach to digital asset adoption.
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