HK SFC & HKMA Circular: Plans Underway to Accept Cryptocurrency Spot ETF Applications A Look at the Key Specifications in One Article

Hong Kong's Securities and Futures Commission (SFC) and the Monetary Authority (MA) recently jointly issued a circular entitled "Guidelines for Intermediaries Engaging in Virtual Asset Activities". The circular states that, in addition to the cryptocurrency futures exchange-traded funds (ETFs) that are currently available, Hong Kong intends to start accepting applications for authorization of other fund types related to virtual assets, which specifically mentions cryptocurrency spot ETFs.

SEC: ready for spot funds

On December 22, Hong Kong's Securities and Futures Commission (SFC) and the Hong Kong Monetary Authority (HKMA) issued a joint circular entitled "Guidelines for Intermediaries Engaging in Virtual Asset Activities". It mentions that the SFC and the HKMA have reviewed the existing policy on intermediaries who wish to engage in virtual asset-related activities. With the SFC having recognized virtual asset futures ETFs and ready to accept applications for recognition of other funds involving virtual assets, including the Virtual Asset Spot Exchange Traded Funds (Virtual Asset Spot ETFs), the two regulators have updated their policies in the light of the latest market developments mentioned above.

Regulatory Standards for Cryptocurrency Spot ETFs

According to a recent announcement, the Hong Kong Securities and Futures Commission (SFC) has set the following specifications for Cryptocurrency Spot Exchange Traded Funds (ETFs):

• Trading in virtual assets involved in cryptocurrency spot ETFs must be conducted on a SFC-approved virtual asset trading platform (VATP) or an authorized financial institution.
• Such ETFs should support subscriptions and redemptions in physical assets or cash.
• In terms of custody, the fund's custodian services shall be provided by a VATP recognized by the SFC or a financial institution that meets the cryptocurrency custodian standards set by the FSA.
• With respect to the valuation of virtual assets, the fund management company is required to use an indexing methodology based on the trading volume of the major trading platforms to calculate the same.
• Any fund that plans to invest more than 10% of its net assets in cryptocurrencies must seek prior advice from the SFC.