Hong Kong Financial System Invites Spot Crypto ETF Applications, Lays Out Guidelines

by Khyathi Dalal, Benzinga Staff Writer
December 22, 2023 11:45 AM | 2 min read |
Zinger Key Points
  • HongKong’s financial regulator indicated that they are all set to address the requirements for spot crypto ETFs.
  • To have more than 10% of its net asset value exposed to crypto, consultation with the regulator is a requirement.

Hong Kong’s financial regulator has issued a circular to indicate that it is ready to accept spot crypto exchange-traded fund (ETF) applications.

What Happened: The Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) announced that they have received a rising number of inquiries from intermediaries for distributing investment products with exposure to virtual assets.

In a joint circular, it indicated that they have reviewed their existing policy for intermediaries.

Besides existing crypto futures ETFs, SFC in its circular said it is, “prepared to accept applications for the authorization of other funds with exposure to virtual assets, including virtual asset spot exchange-traded funds (VA spot ETFs).”

The announcement comes as Hong Kong spent much of November looking at options to open up the market to ETFs that would directly invest in cryptocurrencies.

Why It Matters: The SFC has listed out requirements for funds for investing directly in the same spot VA tokens. The tokens will be accessible to the Hong Kong public for trading on SFC-licensed virtual asset trading platforms (VATPs).

  • Crypto transactions made by any such ETFs will be required to be carried out through SFC-licensed crypto platforms or authorized financial institutions. The regulator stated that both in-kind and in-cash subscriptions and redemption will be allowed for SFC-authorized spot VA ETFs.
  • For custody, the SFC said that the fund’s trustee or custodian will be required to delegate its crypto custody function to an SFC-licensed VATP or those that meet the crypto custody standards issued by the HKMA.
  • For valuations of the spot virtual assets, an indexing approach based on VA trade volume across major VA trading platforms should be adopted. For crypto exposure of more than 10%, funds should have prior consultation with the SFC.

Read Next: Hong Kong's HashKey Exchange Lists This Top 20 Token For Professional Trading

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