The fundamental requirements that exchange-traded fund managers must fulfill to list cryptocurrency products in Hong Kong have been outlined by the city’s regulatory body.
The list is a component of the city’s larger initiative to reestablish Hong Kong as a hub for virtual assets. On Monday, the finance minister and other top officials unveiled strategies for luring cryptocurrency-related businesses, including clearer trading regulations.
The regional government of Hong Kong also reiterated its involvement in China’s larger experiment with central bank digital currencies. According to Securities and Futures Commission Deputy CEO Julia Leung, some of these plans include crypto futures ETFs with underlying assets in assets linked to Bitcoin and Ether futures traded on the Chicago Mercantile Exchange (CME).
More information on what the SFC expected from any ETF issuer seeking regulatory approval to list a futures cryptocurrency product in Hong Kong was provided in a circular that was published after the forum’s conclusion for the day.
Any product needs to meet requirements governing unit trusts, mutual funds, and unlisted structured products. The ETF issuer needs to show a minimum three-year track record and a record of regulatory compliance. Issuers will need to demonstrate that digital asset ETFs have adequate liquidity. Net derivative exposure cannot exceed 100% of the ETF’s total net asset value. Issuers are required to carry out investor education efforts before launch.
According to the SFC’s regulatory notice,
”It has been observed that there are meaningful developments in the VA ecosystem recently and some of the initial concerns over VA Futures ETFs have become increasingly manageable and could be adequately addressed with proper safeguards, disclosure, and investor education,”
However, the agency expressed concern about cryptocurrencies and other virtual assets despite the announcement. In its announcement, the SFC noted that “a good part of the VA ecosystem (e.g., VA trading platforms) is still not subject to the same robust regulation as service providers or products in traditional financial markets. Investment products that invest directly in spot VAs may continue to present investor protection issues.”
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