Hong Kong Introduces Rules for Spot Bitcoin ETFs
The Hong Kong Securities and Futures Commission (SFC) has released guidelines for spot bitcoin exchange-traded fund (ETF) issuers, allowing for the use of cash and in-kind creation models. This diverges from the approach taken by the U.S. Securities and Exchange Commission (SEC), which requires the exclusive use of the cash creation model for spot bitcoin ETFs.
New Rules for Investment Funds with Virtual Assets
On December 22, the SFC published a circular outlining the requirements for “authorized funds with exposure to virtual assets.” The circular sets the parameters for the SFC to consider authorizing investment funds with more than 10% exposure to virtual assets for public offerings in Hong Kong. The SFC acknowledged the rapidly evolving landscape of virtual assets globally, noting the growing popularity of investment products, including crypto ETFs.
Increased Demand for Virtual Asset Products in Hong Kong
The SFC recognized the increased demand for virtual asset products in Hong Kong and introduced regulatory regimes to allow the offering of certain virtual asset products to the public with investor protection safeguards. In October of last year, the SFC started accepting applications for ETFs with exposure to crypto assets through futures contracts. This was followed by the implementation of the SFC’s licensing regime for virtual asset trading platforms, granting Hong Kong investors direct access to spot virtual assets, subject to eligibility requirements and investor protection measures.
Requirements for Spot Crypto Transactions and Acquisitions
When it comes to spot crypto transactions and acquisitions, SFC-authorized funds must conduct these activities through licensed crypto trading platforms or authorized financial institutions, in accordance with the regulatory requirements set by the Hong Kong Monetary Authority. The SFC clarified that both in-kind and in-cash subscription and redemption are permitted for SFC-authorized spot virtual asset ETFs.
Contrasting Approaches: Hong Kong vs. the US
While Hong Kong allows for spot bitcoin ETFs with cash and in-kind models, the SEC in the United States remains steadfast in its requirement for the cash model. Applicants for spot bitcoin ETFs in the US have until the end of the week to file amended registrations for consideration in the first round of decisions in early January.
Hot Take: Hong Kong Embraces Innovation in Spot Bitcoin ETF Rules
Hong Kong’s introduction of rules allowing cash and in-kind creation models for spot bitcoin ETFs demonstrates the city’s willingness to embrace innovative approaches in the crypto market. With the increasing popularity of virtual asset products, Hong Kong is creating a regulatory framework that ensures investor protection while facilitating access to these investment opportunities. This forward-thinking approach sets Hong Kong apart from the US, where the SEC maintains a strict cash-only requirement for spot bitcoin ETFs. As the crypto industry continues to evolve, Hong Kong’s progressive stance may attract more investors and foster further growth in the virtual asset market.
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