Theme

Requirement

Management Companies

The management companies overseeing authorized VA Funds are required to demonstrate good record of regulatory compliance and employ at least one qualified staff member with relevant experience in managing VA or related products.

The companies shall also be subject to any terms and conditions imposed by the SFC during the licensing.

Eligible Underlying VA

Authorized VA Funds are required to invest directly or indirectly only in VA tokens that are accessible to the Hong Kong public for trading on SFC-licensed VATPs.

Investment Strategy

VA Funds may only deal on VA futures traded on regulated exchanges, provided such VA futures have sufficient liquidity, manageable roll costs, and a demonstrated plan for handling those costs.

Indirect exposures through other exchange-traded products must comply with UT Code requirements and any additional terms as imposed by the SFC.

VA Funds should not have leveraged exposure to VA at the overall fund level.

Where a fund primarily adopts a futures-based strategy, it should deploy an active investment strategy to allow flexibility in portfolio composition, rolling strategy, and addressing any market disruptions.

Transactions and Direct Acquisitions of Spot VA

Authorized VA Funds must conduct transactions and acquisitions of spot VA through SFC-licensed VATPs or authorized financial institutions (“AIs”) in compliance with the HKMA requirements. Specifically:

a)     In-cash subscriptions and redemptions for authorized spot VA ETFs should be done through SFC-licensed VATPs, either on or off the platform.

b)     Participating dealers (“PDs”) of in-kind subscriptions are expected to transfer spot VA, whether held locally or overseas, to the custody accounts of SFC-authorized spot VA ETFs with SFC-licensed VATPs or AIs (or their local subsidiaries). The process is in reverse for in-kind redemptions.

For ETFs investing in spot VA, their PDs should be SFC-licensed corporations or registered institutions, and subject to any conditions imposed by the SFC.

Custody

The trustee/custodian of an authorized VA Fund can delegate its VA custody function only to an SFC-licensed VATP or AI. The custody entities must:

a)      Keep VA holdings separate from their assets and those of other clients;

b)   Store most VA holdings in a cold wallet, minimizing the use of a hot wallet except for subscription and redemption needs; and

c)    Securely store seeds and private keys in Hong Kong, limit access to only authorized personnel, deploy safeguards against speculation or collusion, and maintain proper backups to mitigate single points of failure.

Valuation

Management companies of authorized VA Funds should adopt an indexing approach based on trade volume. For example, a benchmark index published by a reputable provider that reflects a significant share of trading activities in the underlying spot VA across major trading platforms.

Service Providers

Management companies must ensure that service providers such as fund administrators, PDs, market makers or index providers are competent, available, and able to support authorized VA Funds.

Disclosure and Investor Education

The offering documents, including Key Facts Statements (“KFS”) of authorized VA Funds should, on an upfront basis, disclose investment limits and key risks related to the funds’ VA exposures. Specifically:

a)      Price risk, custody risk, cybersecurity risk, and fork risk for spot VA investments; and

b)   Potentially large roll costs and operational risks (such as margin risk and risks related to mandatory measures imposed by relevant parties) for VA futures investments.

Management companies of authorized VA Funds are also obligated to conduct investor education before launch in line with requirements under the UT Code.