The Securities and Futures Commission (SFC) of Hong Kong is currently accepting applications for virtual asset spot ETFs, with several issuers actively preparing for submission.

Lawrence Chu, Chairman of VSF Group (VSFG), revealed his intent to collaborate with a local fund company, aiming to submit the application before the Lunar New Year and launch in the first quarter, with an initial target of reaching a $500 million AUM by year-end.

Chu emphasized the focus on the Asian time zone, citing the competition against the 11 approved ETFs in the United States.

While ETFs are open to retail investors, VSFG has been in talks with institutional investors from Hong Kong, mainland China, South Korea, Japan, and Taiwan, recognizing significant demand in the entire Asian region.

As of now, the SFC has not approved any virtual asset spot ETFs, and the industry requires time for preparations.

SEE: Lawrence Chu, Credit Hong Kong Economic Journal

According to regulations, approved custodians for virtual asset funds are limited to platforms licensed by the SFC or banks meeting the Hong Kong Monetary Authority's virtual asset custody standards.

Chu mentioned that VSFG, having introduced SFC-approved spot Bitcoin tracking products in 2020, has operational experience, with the key distinction being that ETFs can be traded on the Hong Kong Stock Exchange.

Preparing for Launch

HashKey Group's COO, Michael Ng, stated that over ten fund companies are actively preparing to launch spot ETFs in Hong Kong.

Seven to eight of them are in the advanced stages, collaborating with HashKey for practical advancement, aiming to launch within the next few months.

These funds may opt for licensed exchanges for asset custody, trading, and clearing services.

OSL's Executive Director and Head of Regulatory Affairs, Dave Chapman, mentioned ongoing communication with numerous fund companies. He estimated that 5 to 10 companies are conducting research, with the possibility of launching the first spot ETFs by mid-year. He acknowledged the pressure on cost control due to only two licensed virtual asset platforms in the market.

Currently, Hong Kong hosts three virtual currency futures ETFs, including Fidelity's Bitcoin Futures ETF and Ethereum Futures ETF.

Watch And See

Market players are cautiously observing the demand before considering additional spot ETF launches.

Industry experts emphasize the simplicity of operating with futures ETFs, given lower systemic risks compared to spot ETFs, which entail higher custody and counterparty risks.

Samsung Asset Management (Hong Kong)'s ETF Investment Strategist, Tracy Siu, expressed interest in spot products but mentioned no immediate plans for an update.

Siu highlighted the challenge of distributing virtual asset futures ETFs through banks, and any potential launch of spot ETFs would be carefully considered based on market demand.