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Hong Kong to authorise virtual asset ETFs

The Hong Kong government issued a policy statement on the development of virtual assets today.
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The Hong Kong government has announced plans today to develop an ecosystem for virtual assets in the special administrative region, including issuing licences for virtual assets service providers and authorising virtual assets ETFs.

Currently, only professional investors are allowed to trade crypto assets.

According to the Hong Kong Securities and Futures Commission’s (SFC) product survey, investors in Hong Kong bought HK$10bn ($1.27bn) in virtual assets funds via overseas platforms in 2021, up from HK$8m a year earlier.

The regulator believes investors now have a better understanding of the risks of trading these assets and it is now an opportune time to review the ‘professional investor only’ requirement.

“We have come to believe that some initial concerns about virtual assets futures ETFs have become manageable and can be addressed with proper safeguards,” said Julia Leung, deputy chief executive officer and executive director for intermediaries at the SFC.

“Apart from the existing requirements for ETFs, virtual assets futures ETFs will also be subject to additional requirements related to its management company, investment strategy, disclosure and investor education.”

At the initial stage, the underlying assets for the virtual assets ETFs will be confined to Bitcoin futures and Ether futures traded on the Chicago Mercantile Exchange, she added.

Hong Kong Exchange and Clearing (HKEX) welcomed the announcement to permit the listing of ETFs with virtual assets as their underlying.

“This will further strengthen Hong Kong’s role as an international financial centre, as well as supporting the continued growth of Hong Kong as Asia’s preferred ETF marketplace,” said Wilfred Yiu, HKEX co-chief operating officer and co-head of markets.

“HKEX will work closely with issuers and other stakeholders towards the introduction of this new ETF product. We will update the market as appropriate.”

Apart from having ETFs based on virtual assets, the government is also looking at issuing licences to eligible virtual assets service providers and allowing retail investors access to virtual assets.

“The key point of being a licensee is that once you obtain the licence, you can level up to the traditional financial market so other licensees in the traditional financial sector such as banks and other institutions can be your distributor such that you can tap into the vast market of asset and wealth management worth over $4.5trn,” said Christopher Hui, secretary for financial services and the treasury, at the Hong Kong Fintech Week.

Part of the Mark Allen Group.