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Hong Kong Bitcoin, Ethereum spot ETF, Shengli Securities primary market physical subscription guide

author:MarsBit

Original source: Bailu Lounge

Original author: blog post

When Bitcoin and Ethereum spot ETFs will be approved for listing is the absolute focus of the Hong Kong market in April.

On April 15, the Hong Kong subsidiaries of three large mainland public funds, Bosera Fund (International) Co., Ltd., China Asset Management (Hong Kong) Co., Ltd. and Harvest International Asset Management Co., Ltd., announced on the same day that they had received approval from the Hong Kong Securities and Futures Commission to provide virtual asset management services to investors, and planned to launch virtual asset spot asset management products. As the first participating securities firm in Hong Kong that can subscribe in Bitcoin and Ether in the primary market, Victory Securities will simultaneously open the physical subscription of Bitcoin and Ethereum spot ETFs. For more news, please refer to: Approved as soon as next Monday!

For investors in virtual assets, the physical subscription is undoubtedly one of the biggest attractions of the Hong Kong Bitcoin and Ethereum spot ETFs. Especially in the current environment where major banks in Hong Kong are still not completely friendly to the "withdrawal" of virtual assets from the exchange, the listing of ETFs has opened up the compliant "withdrawal" channel of Bitcoin and Ethereum, which plays a vital role in boosting market confidence.

In this article, Bailu Lounge will summarize and sort out the relevant information about the physical subscription of Hong Kong Bitcoin and Ethereum spot ETFs in the primary market of Shengli Securities, including account opening conditions and methods, physical subscription process, rates, new arbitrage space and other aspects to help investors make a layout in advance.

Advantages of virtual asset spot ETFs

For virtual asset investors, asset security is always the number one consideration. On the one hand, the blockchain network is "full of hackers", which is easy to bring irreparable losses to investors, and on the other hand, the regulatory pressure makes the compliance of virtual assets always have policy risks. The advent of spot ETFs offers an excellent solution to these two key problems.

ETF fund companies will work with large and reputable custodians to reduce the risk of hacking and fraud, and provide investors with technical convenience in solving the problem of managing private keys and wallets. At the same time, because Bitcoin and Ethereum spot ETFs have received strict review and supervision from the Hong Kong Securities and Futures Commission, their own legal compliance will provide traditional institutions with more diversified and liquid allocation options, especially now that the US SEC has not approved the listing of Ethereum spot ETFs, Hong Kong Ethereum spot ETFs are expected to provide more risk exposure for major institutions after listing, and are a market opportunity that cannot be missed.

It is currently required to be conducted through Victory Securities

ETF primary market physical subscription

According to the requirements of the Hong Kong Securities and Futures Commission, if the Bitcoin and Ethereum spot ETFs are redeemed in kind, the virtual assets need to be transferred in or out of the fund's custody account through an SFC-authorized institution. Shengli Securities took the lead in compliance and became the first participating securities firm in Hong Kong to conduct physical subscription of Bitcoin and Ethereum in the primary market.

In the process of compliance of virtual assets in Hong Kong, Shengli Securities, as a representative of the brokerage, has basically determined the first-mover advantage. Victory Securities has been approved for Virtual Asset No. 1 (Virtual Asset Trading), No. 4 (Virtual Asset Advisory Services) and No. 9 (Virtual Asset Management Services) licenses, and is the first brokerage firm in Hong Kong that can conduct virtual asset business for retail investors. The full license allows Victory Securities' business to be carried out as soon as possible.

Not long ago, Victory Securities became the first brokerage firm to be approved by the Securities and Futures Commission to allow currency to enter and exit, and launched VictoryX Victory Pass, which includes multiple markets such as virtual assets, Hong Kong stocks and US stocks. The timely launch of the app coincides with the listing of virtual asset spot ETFs, and also brings opportunities for Victory Securities to grow rapidly.

Rules for investors to subscribe in kind

After the approval of the first batch of Bitcoin and Ethereum spot ETFs, Shengli Securities will become the only channel to participate in the physical subscription in the primary market. The following will summarize the practical rules for participating in the physical subscription of ETFs through Victory Securities to help investors better familiarize themselves with the subscription process.

Investor account opening qualifications

According to the current trading method in Hong Kong, anyone who buys an ETF needs to purchase units with a specific lower limit, and the trading and cost will vary depending on the entry threshold order.

There are investor restrictions in Hong Kong, and according to the Joint Circular, the sale of VA-related products must comply with the requirements of the relevant jurisdiction, i.e. virtual asset spot ETFs are prohibited from being sold to Chinese mainland investors. The VA-related products are not sold, sold, or sold for the benefit of legal persons or natural persons in Chinese mainland, directly or indirectly, in Chinese mainland. Legal or natural persons in Chinese mainland are not allowed to purchase Bitcoin ETFs directly or indirectly without first obtaining all necessary government approvals from Chinese mainland.

There are different opinions on whether "southbound funds" can be used to invest in virtual asset spot ETFs, but the probability of feasibility is still very low.

Victory Securities account opening requirements

Log in to the official website of Victory Securities and go through the "Customer Service" - "Account Opening" option to find the guide to the account opening process of Victory Securities. Download the "Shengli Tong" software from the official website, and click "Open an account now" from the homepage to quickly start the account opening process.

Hong Kong Bitcoin, Ethereum spot ETF, Shengli Securities primary market physical subscription guide
Hong Kong Bitcoin, Ethereum spot ETF, Shengli Securities primary market physical subscription guide

To open a personal account for Chinese mainland residents, the information preparation required includes:

(i) Chinese mainland second-generation identity card

(ii) a debit card of the same name for bank account opening in Chinese mainland. The bank card is only used for real-name identity verification and will not and cannot be used for the transfer of funds in and out of the Victory Account;

(iii) an email address to receive future win-related notifications and account information;

(iv) If the address declared by the customer is different from that shown on the domestic identity card, a copy of any proof of address within the last three months (e.g. tax bill, utility bill, bank statement, etc.) must be provided;

(v) Hong Kong bank account number (for fund transactions after account opening).

To open a personal account for Hong Kong residents, the following documents need to be prepared:

(i) Hong Kong Identity Card;

(ii) a copy of any proof of address dated within the last 3 months (e.g. tax bill, utility bill, bank statement);

(iii) an email address to receive future win-related notifications and account information;

(iv) Hong Kong bank account number.

To open a corporate account in a Hong Kong company, the information preparation required includes:

(i) a copy of the resolution of the Board of Directors;

(ii) a copy of the identity card/passport of the following persons and proof of address within the last 3 months: all directors, authorized trading persons, authorized signatories (the above two categories are determined by the board of directors), ultimate principal beneficial income holders (with a final interest/shares of 10% or more of the company);

(iii) Certificate of Incorporation (CI) and subsequent Certificate of Change of Company Name (if any);

(iv) Articles of Association or Rules;

(v) Proof of company address;

(vi) Proof of corporate bank account;

(vii) the latest annual return, all subsequent notices of change of secretary and director (appointment/resignation) (Form D2A / ND2A), and share allotment return (Form SC1 / NSC1) and/or instrument of transfer detailing the information of the current shareholders (if applicable);

(viii) a valid Business Registration Certificate (BR);

(ix) the shareholding structure of the company (which can be signed by the directors).

To open a corporate account with an overseas company, the documents that need to be prepared include:

(i) a copy of the resolution of the Board of Directors;

(ii) a copy of the identity card/passport of the following persons and proof of address within the last 3 months: all directors, authorized trading persons, authorized signatories (the above two categories are determined by the board of directors), ultimate principal beneficial income holders (with a final interest/shares of 10% or more of the company);

(iii) Certificate of Incorporation (CI) and subsequent Certificate of Change of Company Name (if any);

(iv) Articles of Association or Rules;

(v) Proof of company address;

(vi) Proof of corporate bank account;

(vii) Directors' Records & Shareholders' Records;

(viii) Certificate of Incumbency of Directors (issued within the last 6 months) (the above 2 items can be enquired from the local corporate service provider or intermediary);

(ix) the shareholding structure of the company (which can be signed by the directors).

If you need to open a virtual asset account, you are required to complete and sign 4 documents in an electronic or paper form after completing the account opening of a personal securities account or a corporate securities account. The documents include:

(i) Additional agreements for virtual asset transactions;

(ii) VA Additional Risk Disclosure Statement;

(iii) Risk Tolerance Questionnaire;

(iv) Questionnaire on knowledge and experience of virtual assets.

Subscribe for Bitcoin and Ethereum in the primary market

After the securities account is opened, investors who hold spot Bitcoin and Ethereum can subscribe for Bitcoin and Ethereum spot ETFs according to the following process.

Hong Kong Bitcoin, Ethereum spot ETF, Shengli Securities primary market physical subscription guide

Account opening: Clients need to open a securities account with Victory Securities;

Deposit: Clients deposit Ethereum/Bitcoin to Victory Securities' account on the exchange;

Transaction: After communicating with the client, evaluating the client's financial situation, investment objectives, and suitability analysis, the investment manager determines that the client is suitable to subscribe for the Ethereum/Bitcoin ETF in kind, the investment manager will give the subscription instruction to Shengli Securities, and Shengli Securities will subscribe for the corresponding ETF shares with the Ethereum/Bitcoin deposited by the customer;

Settlement: Shengli will transfer the ETF shares to the customer's holding, and send the daily and monthly statements to the customer's mailbox.

Cash subscription in the primary market

For new investors, they can choose to participate in the primary market subscription of spot ETFs by way of cash subscription. Although the risk of loss will be higher than that of physical subscription, ETF subscription can still provide more skyrocketing in terms of asset safety and compliance than direct investment in virtual assets.

Hong Kong Bitcoin, Ethereum spot ETF, Shengli Securities primary market physical subscription guide

Account opening: Clients need to open an account with Victory Securities;

Transaction: The customer will give the transaction instruction to Shengli Securities, and Shengli Securities is responsible for subscribing;

Deposit: The customer deposits funds to Shengli Securities, and Shengli Securities deposits funds to the ETF custodian bank;

Settlement: HKSCC allocates the shares to Victory Securities, Victory Securities transfers the shares to the client, and Victory Securities sends the daily and monthly statements to the client's mailbox.

Subscription rate

Hong Kong Bitcoin, Ethereum spot ETF, Shengli Securities primary market physical subscription guide

Hit the new arbitrage space

It is worth noting that there may be arbitrage space for the physical subscription of Bitcoin and Ethereum spot ETF shares. Because there are many brokerages in the secondary market and a large number of users, there are obvious differences in the amount of funds. The shares subscribed from the primary market often have a premium in the secondary market, which also means that there is an opportunity to make a profit by cashing out in compliance.

Even if the performance of the secondary market is not as expected, because it can be redeemed in kind, investors will not lose the original virtual asset chips, and the risk of loss is low.

Tax Treatment

Bitcoin ETF taxation involves capital gains tax, income tax, withholding tax, etc., and the specific taxation is related to factors such as the place and type of registration, the investor's place of residence, and the jurisdiction where the investment target is located. In the sale and redemption of ETFs, the sale is a capital gains tax event, while the redemption is not a taxable event and is not taxable, and there is a withholding tax on investing in Bitcoin ETF dividends in other countries or regions.

Hong Kong is taxed on a territorial-based basis, and only Hong Kong-sourced profits and income are taxed. At the same time, there is no tax on capital gains made by companies and individuals in Hong Kong, but profits tax is levied because the capital gains from the sale of shares will be regarded as transactional if the shareholding period is short. Therefore, Hong Kong residents generally do not need to be taxed on the spread income obtained by selling Bitcoin ETFs, and Hong Kong residents generally do not need to pay tax on Bitcoin ETF dividends received in Hong Kong.

Hong Kong businesses are subject to profits tax on the spread income from the sale of Bitcoin ETFs. The profits tax rate is 8.25% for the first HK$2 million and 16.5% on assessable profits thereafter. For persons other than corporations engaged in sole proprietorship or partnership, the two-tiered profits tax rates are 7.5% and 15% respectively. At the same time, corporate investors generally do not have to pay taxes on dividends when investing in Bitcoin ETFs.

ConclusionWith the landing of Bitcoin and Ethereum spot ETFs, the competition between the East and the West in the virtual asset market will officially kick off. The size of the Hong Kong market is relatively small, but the regulatory framework is clear and the policy soil is suitable, which is more conducive to the implementation of innovation and the interconnection with traditional finance.

When will Hong Kong be able to bring its advantages into play with the United States? We will wait and see.

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