Hong Kong’s securities regulator plans to introduce virtual asset derivatives trading for professional investors, aiming to expand product options while maintaining sound risk controls.

The move is part of the city’s push to bolster its competitiveness in the global digital asset market, said Christopher Hui Ching-yu, secretary for financial services and the Treasury, on Wednesday.

The Securities and Futures Commission (SFC) said that robust risk management measures will be prioritized to ensure trades are conducted “in an orderly, transparent and secure manner”.

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The proposed product will facilitate efficient risk transfers, boost liquidity in the underlying spot markets — where cryptocurrencies are traded for immediate payment and delivery — and support experienced investors in engaging in hedging and leveraging strategies, SFC said.

The regulator earlier this year outlined plans to broaden the range of virtual asset products and services available to different types of investors.

As part of its efforts, the SFC has permitted staking services for virtual assets, enabling investors to earn additional returns. In April, the SFC approved two licensed virtual asset trading platforms to offer staking services under specific conditions, which was followed by two SFC-authorized virtual asset spot exchange traded funds (ETFs) revising their documentation to engage in staking activities.

In response to the evolving virtual asset landscape, Hui said, the Financial Services and the Treasury Bureau is preparing to issue the second policy statement on virtual assets, laying out future policy directions.

The statement will explore ways to leverage the advantages of traditional financial services and innovative technologies to fuel the development of the virtual asset market, enhance security and flexibility of real economy activities, and encourage both local and international businesses to adopt VA technologies, he added.

This follows the release of Hong Kong Special Administrative Region government’s first policy statement on virtual asset development in October 2022, which set out its stance and strategy to build a vibrant crypto ecosystem in the city.

Since then, Hong Kong has been ramping up its efforts to strengthen its position as a digital asset hub. For retail investors, the SFC green-lighted the first batch of VA futures ETFs trading in December 2022, Asia’s first VA spot ETFs in April 2024, and Asia’s first VA futures inverse product in July 2024.

“These products have broadened the product diversity of the Hong Kong market, further enhancing Hong Kong’s position as Asia’s leading ETF market,” Hui said.

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Moreover, he said, as part of measures to enhance the preferential tax regimes for funds, single-family offices and carried interest, virtual assets will be recognized as qualifying transactions for tax concessions, in a bid to attract more large-scale international fintech companies to establish a presence in Hong Kong.

Hong Kong now is home to more than 1,100 fintech firms, including eight licensed digital banks, four virtual insurers, and 10 virtual asset trading platforms.

According to data cited by the SFC, the global virtual asset market — valued at more than $3 trillion in 2024 — has become “a potentially transformative force in global finance”. Despite challenges such as regulatory fragmentation and economic uncertainty, the market has shown resilience, with annual trading volumes surpassing $70 trillion.

Contact the writer at irisli@chinadailyhk.com