Oversight: Virtual asset futures ETFs

Introduction

On 31 October 2022, the Securities and Futures Commission of Hong Kong (SFC) issued a circular regarding virtual assets (VA) futures exchange traded funds (Circular). The Circular sets out the requirements under which the SFC may authorise exchange traded funds (ETFs) that obtain exposure to VA primarily through futures contracts (VA Futures ETFs) for public offering in Hong Kong under sections 104 and 105 of the Securities and Futures Ordinance (SFO). Such authorisation by the SFC is a pre-requisite for an ETF to be listed on The Stock Exchange of Hong Kong Limited (SEHK).

“VA” refers to digital representations of value which may be in the form of digital tokens (such as utility tokens, stablecoins, security-backed tokens or asset-backed tokens) or any other virtual commodities, crypto assets or other assets of essentially the same nature, irrespective of whether or not they amount to “securities” or “futures contracts” as defined under the SFO, but excludes digital representations of fiat currencies issued by central banks.

This Oversight first provides a brief overview of the background regarding the SFC’s approach to VA. It then discusses the requirements set out in the Circular which are applicable to VA Futures ETFs which seek SFC authorisation and the practical implications arising from the implementation of the Circular.