Retail Investors to Trade Major Coins on Licensed Exchanges
Individual investors could trade larger coins on exchanges licensed by the Securities and Futures Commission (SFC). The regulator has stated that safeguards, such as knowledge tests, risk profiles, and reasonable exposure limits, must be implemented.
Details on Allowed Tokens Not Specified
The SFC has not specified which large-cap tokens will be allowed for retail investors. Instead, it stated that the coins should be included in at least two acceptable, investible indexes from independent providers, one of which should have experience in the traditional financial sector.
Consultation Period and Objective for Retail Trading
The consultation period will end on March 31, and the objective is to allow retail trading in the new licensing regime for crypto exchanges, which will take effect on June 1. Bitcoin and Ether, the two largest digital assets by market value, are expected to be listed by Hong Kong platforms.
Hong Kong's Efforts to Restore Financial Center Credentials
Hong Kong pivoted to a pro-crypto stance at the end of October as part of a wider effort to restore the city's credentials as a financial center. Officials are working on learning from the $1.5 trillion digital-asset rout of 2022 and a series of global bankruptcies, such as the collapse of the FTX exchange, to create a mandatory regulatory framework that can attract firms and protect investors.
Onus on Exchanges to Monitor Listed Assets
The consultation paper did not specify any specific crypto indexes as a reference point for a taxonomy of allowable tokens. The responsibility would be on exchanges to monitor listed assets to ensure they are eligible for trading by individual investors.
Other Pro-Crypto Developments in Hong Kong
The government has already allowed exchange-traded funds to invest in CME Group Bitcoin and Ether futures and sold inaugural digital green bonds this month.
Crypto Executives Drawn to Friendly Policy Stances in Hong Kong and Beyond
Digital asset executives are increasingly drawn to the friendlier policy stances of places like Hong Kong, Dubai, and Europe. A spate of crypto probes in the US clouds the country's position as an industry hub.
Potential for Mainland Chinese Investment
Hong Kong's pivot could also open up a conduit for mainland Chinese investment if Beijing eventually loosens its ban on most crypto on the mainland.
Industry Leaders' Views on Hong Kong's Ambitions
Industry leaders, such as Cameron Winklevoss and Brian Armstrong, have expressed positive views on Hong Kong's ambitions in the crypto industry. However, the city still faces many obstacles, including a downturn in the virtual-asset industry that has resulted in job cuts and a partial rebound of the crypto markets from the bust of 2022.
Companies May Wait for Clearer Policy Landscape
Companies may be hesitant to invest until the policy landscape in Hong Kong becomes clearer. The city's current regime for crypto exchanges is voluntary and restricts them to clients with portfolios of at least HK$8 million ($1 million). Only two exchanges, HashKey Group and BC Technology Group's OSL bourse, have permits.
Hong Kong's Current Crypto Exchange Regime
Hong Kong's current regime for crypto exchanges is voluntary and only available to clients with portfolios of at least HK$8 million ($1 million).
Limited Number of Exchanges with Permits
Only two exchanges, HashKey Group and BC Technology Group's OSL bourse, have permits under the current regime.
This new plan to allow retail investors to trade digital tokens could increase the number of exchanges operating in Hong Kong and attract more investment to the city's crypto industry. However, the details of the policy and the outcome of the consultation period will be closely watched by the industry.