Hong Kong’s Move towards Permitting Physical Settlement and Redemption in Exchange-Traded Funds (ETFs) Signals Potential Shift Away from U.S. Cash-Only Model
Recent developments in Hong Kong’s regulatory landscape, particularly regarding the allowance of physical settlement and redemption in exchange-traded funds (ETFs) in the second quarter of 2024, are shedding light on a potential divergence from the United States’ strictly cash-reliant transactions.
Experts anticipate that this shift could lead to a rapid increase in Assets Under Management (AUM) and trading volumes in the rapidly expanding Asian region.
Confirmation of this trend comes from research conducted by another leading expert at a European training institute, Rebecca Sin. Sin’s analysis focuses on the landscape of ETFs in Hong Kong, which has evolved significantly since the inception of the pioneering Tracker Fund in 1999. Over the years, the market has introduced innovative products, including covered, leveraged, inverse, and fixed-income ETFs.
The immediate introduction of a Bitcoin ETF in Hong Kong holds immense potential, considering the massive growth witnessed in the U.S. market, which now boasts $62 billion in ETFs. Unlike the United States, where only cash-settlement is allowed, Hong Kong aims to facilitate physical settlements, allowing investors to exchange Bitcoin for shares of ETFs. This departure from the U.S. model presents a unique opportunity for market participants.
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These initiatives follow Hong Kong’s announcement in 2023 that it is open to receiving applications for immediate cryptocurrency ETFs.
Furthermore, earlier reports have indicated that nearly 10 financial institutions are preparing to apply for launching immediate Bitcoin ETFs in Hong Kong, with discussions underway regarding the possibility of creating instant Ethereum ETFs. For example,
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