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Bitcoin Futures Contracts and Related Products – the View from the Securities and Futures Commission

  • Hong Kong


    On the first full trading day of Bitcoin futures products on the established Chicago-based exchange, CBOE Futures Exchange, the Hong Kong Securities and Futures Commission (the “SFC”) issued a circular on Bitcoin futures and cryptocurrency-related investment products, reminding intermediaries of the legal and regulatory requirements when providing Hong Kong investors with related financial services (the “Circular”). A copy of the Circular can be obtained here

    These events follow the announcement made earlier this month by the US Commodities and Futures Trading Commission that Bitcoin futures products and Bitcoin binary options will be launched by three regulated exchanges in the United States. Two of these exchanges are also authorised by the SFC to provide automated trading services. Hong Kong investors may be able to trade Bitcoin futures contracts through an intermediary which is a member of these exchanges. 

    In the Circular the SFC makes clear that Bitcoin futures contracts share the inherent features of a “futures contract” as defined in Hong Kong in the Securities and Futures Ordinance. Subject to certain exemptions, entities who are carrying on a business in dealing with these futures contracts are expected to comply with the applicable licensing, suitability, conduct and authorisation requirements in Hong Kong, and follow the Code of Conduct for Persons Licensed or Registered with the SFC more generally. Provided that the services are targeted at the Hong Kong public, entities will be required to have a licence irrespective of whether it is located in Hong Kong. Depending on the nature of activities, intermediaries will be required to obtain licences of, for example, Type 1 (relaying or routing relevant orders), 2 (marketing a fund which invests in Bitcoin futures contracts), 5 (providing relevant advisory services) or 9 (managing a relevant fund). Failure to comply may attract criminal liabilities.

    The SFC also took the opportunity to highlight the risks associated with trading in cryptocurrencies and the related products, some of which were mentioned in its Statement on Initial Coin Offering published on 5 September 2017 (link here). Some of the key risks include: (i) substantial risks and significant financial losses, especially on unregulated exchanges; (ii) insufficient liquidity, high price volatility and potential market manipulation; and (iii) the speculative nature of the underlying assets. Investors may expect intermediaries to advise them on the features and associated risks of these products when providing services in relation to Bitcoin futures contracts.

    The timing of the publication of the Circular shows the SFC’s responsiveness to market movements in cryptocurrencies not only in Hong Kong but also in the international field. We expect that the regulators in Hong Kong will continue to monitor international market movements and publish more guidance regarding the provision of related services.