Hong Kong will this month see 6 spot virtual assets ETFs (“spot VA ETFs”), comprising spot Bitcoin and Ethereum ETFs, listed on the Hong Kong Stock Exchange for the first time. The ETF listings follow the SFC’s circular issued on 22 December 20231, in which the SFC indicated that it would “consider authorising investment funds with exposure to virtual assets”. This ground-breaking development marks a significant step for Hong Kong in promoting itself as a digital asset hub and reinforces its position as one of the world’s leading financial centres with a unique environment that encourages diversification and growth in virtual asset investments.
The King & Wood Mallesons (“KWM”) Hong Kong team led by Cindy Shek with support from Richard Mazzochi, Minny Siu and Andrew Fei are delighted to have advised BOCI-Prudential Trustee Limited (“BOCPT”), which is the the custodian for all 6 of the spot VA ETFs.
“We congratulate the issuers and BOCPT on the landmark approval of the first batch of spot Virtual Assets ETFs in Hong Kong”, Richard Mazzochi said. “The successful launch of the spot VA ETFs showcases the robustness of Hong Kong's regulatory environment and reinforces Hong Kong’s expertise and leading position with respect to virtual asset investments.”
Minny Siu added, “Our involvement in assisting the custodian to the spot VA ETFs illustrates our dedication in promoting innovative financial solutions. This significant development not only opens up new avenues for investors but also sets an important precedent for future virtual asset initiatives.”
The custodial arrangements for the spot VA ETFs incorporate novel features, which presented unique challenges throughout the transaction. In particular, the custody of virtual assets is performed through sub-custodian arrangements entered into between BOCPT and existing approved virtual asset trading platform operators (VATPs) in Hong Kong. Those involved worked together to ensure that the custodial arrangements and documentation meet regulatory standards set by the SFC and the Hong Kong Monetary Authority (“HKMA”), in particular the HKMA’s Circular2 relating to the provision of custodian services for digital assets The standards ensure the proper safeguard of virtual assets with reference to international standards and practices.
Cindy Shek echoed, “The approval of the spot VA ETFs marks a pivotal moment on the integration of virtual assets into the mainstream financial products in Hong Kong. Our role in assisting with the custodial services demonstrates our commitment to promoting the development of the digital assets landscape and to support our clients through the complex regulatory frameworks. With the continuing support from the Hong Kong regulators on the development of virtual asset investments, it is expected there will be an increasing trend in the issuance of new spot VA ETFs as well as growing interest from asset managers in participating in this new investment landscape. We are thrilled to have played our role in this significant moment for the financial industry in Hong Kong.”
With Hong Kong’s role as a global digital asset hub and the first city in Asia to incorporate virtual assets as a mainstream investment tool, KWM is at the forefront of developments with respect to virtual assets, tokenisation, stablecoins and other digital products in Hong Kong. We look forward to continuing to work with our clients on ground-breaking transactions, and to actively assist with the promotion of innovation in Hong Kong. Please click here to meet our Hong Kong Digital Team.
*Any reference to “Hong Kong” or “Hong Kong SAR” shall be construed as a reference to “Hong Kong Special Administrative Region of the People’s Republic of China”.
Reference
[1] SFC’s Circular on SFC-authorised funds with exposure to virtual assets dated 22 December 2023 (https://apps.sfc.hk/edistributionWeb/gateway/EN/circular/doc?refNo=23EC65)
[2] HKMA’s Circular on Provision of Custodian Services for Digital Assets dated 20 February 2024 (https://www.hkma.gov.hk/media/eng/doc/key-information/guidelines-and-circular/2024/20240220e4.pdf)
