Hong Kong’s Regulator Issues Circular Warning Investors on Unregulated Bitcoin Futures
Hong Kong’s securities regulator has issued a new circular focusing on bitcoin futures contracts and other digital currency-related investment products.
The circular, published by Hong Kong’s Securities and Futures Commission (SFC) on Monday, serves as a reminder of the legal and regulatory requirements providers must comply with when providing Hong Kong investors with any financial services relating to bitcoin futures and other cryptocurrency-related products.
The release of the circular comes at a time when Chicago-based exchange Cboe Global Markets launched their own bitcoin futures with the first full day of trading taking place on Monday. Fellow Chicago-based exchange, CME Group is to launch its bitcoin futures contract on the 18th December, following approval from the Commodity Futures Trading Commission (CFTC) as well.
In the circular, the SFC wrote:
“Bitcoin futures have been or will soon be launched by certain well-established futures and commodities exchanges in the United States which are regulated by the U.S. Commodity Futures Trading Commission and authorised by the Securities and Futures Commission (“SFC”) to provide automated trading services.”
The regulator added:
“Hong Kong investors may be able to trade in bitcoin futures through an intermediary which is a member of these exchanges…The industry is reminded that a party is required to have an appropriate licence with the SFC if it provides any other business services relating to bitcoin futures which constitute a ‘regulated activity.’”
The SFC stressed that businesses dealing with bitcoin futures, including those who relay or route bitcoin futures orders, are required to be licensed for Type 2 regulated activity under the Securities and Futures Ordinance (SFO). The regulator also added that there are other forms of digital currency-related investment products available to investors such as options. It states that these may be regarded as securities under the SFO, and that a failure to obtain the ‘relevant license or authorisation from the SFC may be committing a criminal offence under the SFO.’
The regulator warned investors of the potential risks they may face when trading cryptocurrencies such as insufficient liquidity, high price volatility, and potential market manipulation, adding:
“The SFC further cautions investors that these risks may be magnified in trading cryptocurrency futures contracts and other cryptocurrency-related investment products by the speculative nature of the underlying assets, ie cryptocurrencies, and the leverage inherent in the products.”
It added that investors should fully understand the features of digital currencies, carefully weighing the risks linked to them.