Hong Kong joined with the United States in accepting applications for spot crypto ETFs, a significant step toward integrating digital assets into the mainstream financial market. The Hong Kong Securities and Futures Commission recently issued a circular, signaling its readiness to accept applications from institutions interested in venturing into spot crypto ETFs.
In a joint circular by the Hong Kong Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority, they’ve revised policies for entities that want to engage in virtual asset activities.
The FSC announced openness to authorize funds with exposure to virtual assets, including virtual asset spot exchange-traded funds (VA spot ETFs), extending beyond existing crypto Future ETFs. These funds would directly invest in spot VA tokens accessible to the public via-SFC-licenced virtual asset trading asset trading platforms (VATPs).
The circular emphasizes both options for cash subscriptions as well as in-kind and redemption for SFC-authorised spot VA ETFs. But for maintaining transparency and compliance the crypto transactions of spot ETFs must occur through SFC-licensed platforms or authorized financial institutions.
Additionally, stringent measures are outlined for custody, requiring trustees or custodians to delegate crypto custody functions only to SFC-licenced VATPs or those meeting Hong Kong Monetary Authority (HKMA)’s crypto custody standards. For valuing spot virtual assets, fund management companies are advised to adopt an indexing approach based on trade volumes across major VA trading platforms.
For both funds having or intending to have VA exposure of more than 10% of NVA that wish to seek the SFC’s authorization or existing SFC-authorised funds that plant to obtain VA exposure of more than 10% of their NAV, prior consultation with and approval of the SFC are required.
Hong Kong Securities and Futures Commission (SFC) seems more progressive than the American Securities And Exchange Commission (SEC) by accepting both cash subscriptions and in-kind subscriptions, unlike the SEC’s limited acceptance of cash subscriptions only.
Unlike China’s stringent stance on crypto, Hong Kong is actively acknowledging the legitimacy of virtual assets and encouraging crypto firms to integrate into the financial sector by granting licenses. This move showcases Hong Kong’s ambition to position itself as a global financial hub by embracing innovative technologies such as crypto ETFs.
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