The Securities and Futures Commission (SFC) of Hong Kong is opening the door to the introduction of crypto spot ETFs, signaling a gradual shift in the city’s approach to virtual assets. In a joint announcement with the Hong Kong Monetary Authority, the SFC has announced its readiness to receive applications for various funds, including exchange-traded funds of spot virtual assets (VA Spot ETFs). This move complements the existing cryptocurrency futures ETFs and aligns with the city’s efforts to strengthen its status as a global financial hub.
Demand for these products has also increased in Hong Kong.
The SFC has outlined specific criteria for these funds, emphasizing that cryptocurrency transactions conducted by ETFs must take place through SFC-licensed cryptocurrency platforms or authorized financial institutions. This ensures a regulated and secure framework for investors and aligns with global standards for financial operations. The guidelines also allow for cash and in-kind subscriptions and redemptions for these ETFs, offering flexibility in their management and operation.
Proposed Conditions for Crypto ETFs in Hong Kong
The custody of virtual assets is another crucial aspect addressed in the announcement. The SFC mandates that the trustee or custodian of the fund can only delegate its custody function to an SFC-licensed virtual asset trading platform or those meeting the stringent cryptocurrency custody standards established by the Hong Kong Monetary Authority (HKMA).
For valuation, fund management companies are advised to adopt a volume-based indexing approach through major virtual asset trading platforms. This method aims to provide a realistic and thoughtful valuation of the asset market. Additionally, any fund that envisages exposure to cryptocurrencies exceeding 10% of its net asset value must consult the SFC beforehand, ensuring that risks are adequately managed and disclosed.
Hong Kong’s favorable reception of crypto spot ETFs and virtual asset companies contrasts sharply with the stricter measures observed in mainland China. By actively encouraging collaboration between virtual asset companies and banks, Hong Kong positions itself as a leading center for cryptocurrency innovation and trading.