Hong Kong securities regulator issues Bitcoin futures warning

Written on 9 Jan 2018

The Hong Kong Securities and Future Commission (“SFC“) has recently issued a circular clarifying the regulatory status of Bitcoin futures contracts (“Bitcoin Futures“).  The SFC  has confirmed that only properly licensed financial intermediaries may be permitted to offer US issued Bitcoin Futures on the Hong Kong market.  This circular follows the decision by the Chicago Board of Options Exchange and the CME Group to introduce Bitcoin Futures to the US market.

The SFC’s view is that although the underlying assets of Bitcoin Futures are not subject to regulation under the Hong Kong Securities and Futures Ordinance (“SFO“), Bitcoin Futures traded on and subject to the rules of US exchanges share the conventional features of a “futures contract”, which is a regulated activity under the SFO.

As a result, financial intermediaries who are carrying on the business in dealing with Bitcoin Futures, including those who relay or route Bitcoin Future orders are required to obtain a type 2 license (dealing in futures contracts) issued by the SFC.  Moreover, marketing a fund investing in Bitcoin Futures will constitute a type 1 licensed activity (dealing in securities), while managing such a fund may be considered a type 9 licensed activity (asset management). The circular also notes that providing advisory services in relation to Bitcoin Futures may be considered a type 5 licensed activity (advising on futures contracts).

The SFC states in the circular that a party dealing with Bitcoin Futures which constitute a “regulated activity” should obtain the proper license under the SFO for such activity. This is irrespective of where the party dealing with the Bitcoin Futures is located, so long its business activity targets the Hong Kong public.

In the circular the SFC has further reinforced the emerging regulatory position in relation to cryptocurrencies, and cryptocurrency-related investment products in Hong Kong. That is, if the terms and features of a cryptocurrency or cryptocurrency investment product are regarded as being the same as “securities” as defined under the SFO, parties dealing in, advising on, or managing such products in Hong Kong, or targeting such services to investors in Hong Kong, may be subject to the SFC’s licensing, conduct and authorisation requirements.

Please contact us should you wish to know more about the treatment of cryptocurrency in Hong Kong