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Hong Kong to begin public consultation on retail crypto trading

Hong Kong’s Securities and Futures Commission is about to conduct a public consultation on various pro-crypto measures, including how to accept digital assets for retail investment and ETFs.

The Securities and Futures Commission, Hong Kong’s regulator, says that it is ready to “engage with digital asset exchanges globally” ; the regulator also extended an open invitation for foreign businesses to “set foot in Hong Kong for new business opportunities” under a licence for Virtual Asset (VA) Service Providers.

The regulator adds that it is open to future reviews of property rights for tokenized assets and to examine the legality of smart contracts as of the moment, the regulator is also exploring a range of pilot projects to study the benefits of digital assets and how they can be used in financial markets.

Amongst the projects include the issuance of non-fungible tokens (NFTs) for Hong Kong Fintech Week 2022, Green bond tokenization, and the launch of Hong Kong’s own central bank digital currency (CBDC).

Currently, crypto exchange access is limited to investors with portfolios of at least HK$8 million ($1 million USD). Exchanges operating in Hong Kong are also subject to rules by the territory.

Bringing in crypto ETFs

The consultation set up by the Securities and Futures Commission will explore the possibility of offering crypto-based Exchange Traded Funds (ETFs) within the region.

According to the regulator, the Hong Kong Government is working in conjunction with financial regulators in order to provide an environment that brings in sustainable and reasonable growth of the Virtual Asset (VA) sector in Hong Kong.

“The Securities and Futures Commission will be conducting a public consultation on how retail investors may be given a suitable degree of access to VA [virtual assets], and Hong Kong will be open to the possibility of having exchange-traded funds (ETFs) on VA in our market,” Monday’s government statement said.

On November 1st, the HK SFC announced that it is “prepared to accept applications for authorization of VA futures ETFs.”

Crypto Exchange Traded Funds (ETFs) are investment products that let investors have a stake in a digital asset, without having to own the asset in a crypto wallet. ETFs track prices of any given asset, where investors can buy shares of.

Exponentially rising in popularity, crypto ETFs have given retail investors the opportunity to invest in digital assets – without the hassle of dealing with storing crypto in wallets and gas fees, amongst other points that seem too complicated for them.

One example of a popular crypto ETF are crypto futures ETFs, which track derivative contracts that speculate on future prices of digital assets.

With leading traditional financial firms and global governments have joined the crypto bandwagon, ETFs can now cover products such as real estate and foreign currencies.

However, the United States Securities and Exchange Commission has yet to approve a crypto ETF, despite customer demands.

Boosting Hong Kong’s economy

After political turmoil, regulation, and Covid-19 lockdowns, Hong Kong’s economy is in the midst of reclaiming its status as a fintech hub. Hong Kong’s stock exchange – the Hang Seng Index, has dropped almost 35% in 2022, amongst many other downturns.

In the third quarter of 2022, the territory’s GDP fell by 4.5% – with some attributing it to complications from Covid-19 restrictions in cross-territory land cargo operations.

Meanwhile in the pandemic, Hong Kong maintained its rank as third place in the Global Financial Centres Index, used to measure market competitiveness in a given area. However, Singapore, a noted rival financial hub, is about to catch up.

The decision by the HK SFC can be seen as a gateway to recovering the territory’s economy, despite having imposed regulatory restrictions for exchanges.

FTX, one of the biggest crypto exchanges, was one such major crypto company that moved its operations from Hong Kong, and has chosen the Bahamas to continue operation. In 2018, Hong Kong introduced a voluntary licence regime that restricted crypto platforms to only be used by institutional clients with portfolios worth at least HK$8 million.

Meanwhile in Singapore, the Monetary Authority of Singapore (MAS) had rejected 100 licences from 170 businesses to offer digital payment token services, as they also are considering onboarding more crypto exchanges to operate in the territory.

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