Hong Kong Regulator Issues Warning on Bitcoin Futures

A Hong Kong finance regulator has published a new circular on bitcoin futures and other cryptocurrency-related investment products.

Released by the Securities and Futures Commission (SFC) of Hong Kong on Dec. 11, the circular states that only licensed firms are allowed to offer such products within Hong Kong, specifying that it is a "type 2 regulated activity" under the Securities and Futures Ordinance.

It was notably released on the first full day of trading of the futures contract launched by Chicago-based CBOE, which officially went live late Sunday. It also comes ahead of a release by CME Group, which is kicking off its own futures contract next week.

"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 authorized by the Securities and Futures Commission (“SFC”) to provide automated trading services," the regulator wrote, adding:

"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."

The SFC also stressed that other forms of cryptocurrency-related investment products are available to investors in the country including cryptocurrency options. Failure to obtain a license to offer such services "may be committing a criminal offence under the SFO," according to the circular.

SFC warned investors to check whether bitcoin futures products from unregulated cryptocurrency exchanges constitute "futures contracts" or "securities" under the SFO. It also reminded investors about the potential risks in trading cryptocurrencies including insufficient liquidity and price volatility.

Disclosure: CME Group is an investor in Digital Currency Group, CoinDesk's parent company.

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