Hong Kong financial regulator issues guidelines for crypto futures ETFs
The Securities and Futures Commission of Hong Kong has set up requirements for entities considering a public offering of an exchange-traded fund (ETF) tied to cryptocurrency futures.
In an Oct. 31 circular, the SFC said that in addition to previously imposed requirements on unit trusts and mutual funds for authorization of a crypto futures ETF, management companies in Hong Kong would need to “have a good track record of regulatory compliance” as well as three years of experience managing ETFs, with consideration for similar investment vehicles. The financial regulator hinted it would follow in the Chicago Mercantile Exchange’s footsteps by only initially allowing listings of ETFs linked to Bitcoin (BTC) and Ether (ETH) futures.
“Only [virtual asset, or VA,] futures traded on conventional regulated futures exchanges are allowed, subject to the management company demonstrating that the relevant VA futures have adequate liquidity for the operation of the VA Futures ETF and the roll costs of the relevant VA futures contracts are manageable and how such roll costs will be managed,” said the SFC.
HKEX welcomes the SFC’s announcement today permitting the listing of ETFs with virtual assets as their underlying. This will support the continued growth of #HongKong as Asia’s premier #ETF marketplace, further strengthening Hong Kong’s role as an international financial centre. pic.twitter.com/zLRgAUV6iX
The financial regulator added that the net derivative exposure of any crypto futures ETF “shall not exceed 100% of the ETF’s total net asset value,” and companies should expect to adopt an active investment strategy to account for incidents including market disruptions. The SFC also said ETF issuers were to “carry out extensive investor
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