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Hong Kong financial regulator issues guidelines for crypto futures ETFs

 


The Hong Kong Securities and Exchange Commission has outlined requirements for companies seeking to list an exchange-traded fund (ETF) linked to cryptocurrency futures.


In an Oct. 31 circular , the agency said that in addition to previously imposed mutual fund requirements for a crypto futures ETF to be approved, fund managers in Hong Kong must have "a good track record of compliance" and three years' experience managing ETFs to have. Similar investment vehicles are also taken into account. The financial regulator has indicated that it will follow the example set by the Chicago Mercantile Exchange and initially only allow ETFs linked to bitcoin to be listed.

"The fund manager must demonstrate that the virtual asset futures in question have adequate liquidity for the futures ETF to operate and that the roll costs of the futures contracts in question are manageable and how those roll costs are managed," the agency said.



The financial regulator added that a crypto futures ETF's net derivatives exposure may not "exceed 100 percent of the ETF's total net asset value." Companies should pursue an active investment strategy to counteract market disruptions, for example. The Hong Kong Securities Commission also said that ETF issuers must conduct "comprehensive investor education" before launching crypto investment vehicles in Hong Kong.


The circular was part of an update to Hong Kong government guidelines. On Oct. 31, it announced it was ready to speak to global crypto exchanges on regulatory issues. The government said it is planning a series of pilot projects , including some looking at NFTs, green bond tokenization and a digital Hong Kong dollar.

Christopher Hui, the Hong Kong Secretary for Financial Services and the Treasury said:

"We believe that DLT and Web 3.0 could become the future of finance and commerce. With proper regulation, they are expected to improve efficiency and transparency. The government is ready to welcome that future and we welcome that too." Gathering fintech and virtual asset communities and professionals in Hong Kong. We will promote the sustainable development of financial services across the virtual asset value chain."

Hong Kong is thus taking a very different path from China, although the political borders between the special administrative region and the adjacent mainland have become increasingly blurred in recent years. The Chinese government is cracking down on crypto companies in the country, but continues to work on its central bank digital currency, namely the digital yuan.

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