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Hong Kong’s Financial Regulator Opens Doors to Spot Cryptocurrency ETF

Crypto On December 22, Hong Kong's Securities and Futures Commission (SFC) made a significant announcement, signaling the region's openness to spot cryptocurrency exchange-traded funds (ETFs). In collaboration with the Hong Kong Monetary Authority, the SFC revealed that it is now prepared to accept applications for the authorization of various funds, including Virtual Asset Spot exchange-traded
On December 22, Hong Kong’s Securities and Futures Commission (SFC) made a significant announcement, signaling the region’s openness to spot cryptocurrency exchange-traded funds (ETFs). In collaboration with the Hong Kong Monetary Authority, the SFC revealed that it is now prepared to accept applications for the authorization of various funds, including Virtual Asset Spot exchange-traded funds (VA Spot ETFs), in addition to existing crypto futures ETFs.

In a comprehensive circular issued on the same day, the SFC outlined the criteria for these funds to directly invest in spot Virtual Asset (VA) tokens available to the Hong Kong public on SFC-licensed Virtual Asset Trading Platforms (VATPs). Notably, the SFC emphasized that all cryptocurrency transactions conducted by these ETFs must take place through SFC-licensed crypto platforms or authorized financial institutions.

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The circular further specified that in-kind and in-cash subscriptions and redemption are permissible for SFC-authorized spot Virtual Asset (VA) ETFs. In terms of custody, the SFC outlined that the fund’s trustee or custodian should delegate its crypto custody function only to an SFC-licensed Virtual Asset Trading Platform (VATP) or those meeting the crypto custody standards set by the Hong Kong Monetary Authority.

To determine spot virtual asset valuation, the SFC mandated that the fund’s management companies adopt an indexing approach based on virtual asset trade volume across major virtual asset trading platforms. Interestingly, funds planning to have crypto exposure exceeding 10% of their net asset value must undergo prior consultation with the SFC.

This move by Hong Kong stands in contrast to the broader crackdown on cryptocurrency activities in mainland China. Hong Kong has been actively fostering a positive environment for crypto firms, evident in the region’s encouragement of collaboration with banks throughout the year.

In October 2022, Hong Kong issued policy statements on cryptocurrencies, solidifying its position as a global financial hub. Moreover, in June, the city implemented its crypto licensing system for virtual asset trading platforms, allowing licensed exchanges to provide retail trading services.

Wasif Shakir

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