The Securities and Futures Commission (SFC) and the Monetary Authority (HKMA) of Hong Kong announced their willingness to accept applications for spot crypto exchange-traded funds (ETFs) in a circular published on December 22.
The regulators stated:
“The SFC and the HKMA have reviewed their existing policies for intermediaries wishing to engage in virtual asset-related activities (VA-related activities). The policy has been updated in light of the latest market developments, with the SFC having authorized VA futures ETFs and is prepared to accept applications for the authorization of other funds with exposure to virtual assets, including virtual assets held on-site on the exchange traded (VA spot ETFs).”
This move is in line with the recent trend in Hong Kong to embrace favorable regulations for the crypto sphere. The Asian country has proactively positioned itself as a crypto-friendly hub and has introduced several initiatives to promote growth within the sector.
Last month, CryptoSlate reported that SFC CEO Julia Leung hinted that the regulator would consider allowing retail investors to trade spot crypto ETFs if these investments comply with local regulations.
Spot-based ETFs have received a lot of attention within the crypto community in recent months. Major financial players such as BlackRock and Grayscale have filed applications for a spot-based Bitcoin ETF with the US Securities and Exchange Commission (SEC).
However, despite widespread optimism about these ETFs, the SEC has yet to approve a single application. Instead, the regulatory body postponed its decision until next year.
SFC outlines regulatory measures for Hong Kong ETFs
A separate SFC circular set out the requirement for the regulator to consider approving an ETF application in Hong Kong.
According to the regulator, transactions by the ETFs must be made through SFC-licensed crypto platforms or authorized financial institutions that meet HKMA regulatory requirements.
The regulator also noted that it would allow both in-kind and in-cash subscription and redemption models for these spot ETFs.
In terms of custody requirements, the SFC specified that the trustee or custodian of the fund may only delegate crypto custody functions to an SFC-licensed VATP or to entities that comply with the crypto custody standards set out by the HKMA.
To value these virtual assets, fund managers must implement an indexation methodology that depends on the trading volume of virtual assets on prominent trading platforms.