Hong Kong has raised objections to the Digital Asset Treasury (DAT) transformation plans of at least five companies, highlighting regulatory caution.
The Securities and Futures Commission (SFC) and the Hong Kong Stock Exchange (HKEX) are actively scrutinizing listing plans now. These plans involve companies seeking to transform in the direction of Digital Asset Treasuries (DATs) actively. As such, the HKEX has already issued questions concerning at least five such companies right away. All of these companies has been able to obtain listing approval successfully.
SFC Chairman Flags Investment Risk and Share Premium
SFC Chairman Wong Tin-yau has said that there are no specific regulations governing cryptocurrency investments of listed companies yet. This lack of regulation presents a gap between the SFC and HKEX that makes the cooperation between the two essential now. He stated that the regulator will keep a close check on the market conditions. Furthermore, the SFC will study the success of the need for relevant market guidance.
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Significantly, Hong Kong currently does not allow listed companies to become pure holders of cryptocurrencies immediately. The concern revolves around the allocation of large cash reserves by companies to the active allocation of digital assets. In fact, Mr. Wong said, this DAT trend has been popular in America for a long time.
Analogous to the U.S., where adoption of DAT has been the cause of high stock premiums, Mr Wong warned investors now. He said that when a company invests in a large quantity of virtual currency, its market capitalization will often rise by more than twofold immediately. Therefore, this price surge is frequently a speculative premium, not grounded on fundamental operations.
Critically, Mr Wong encouraged investors to carefully understand the underlying value of a DAT. He stressed that the vast majority of Hong Kong investors do not have a clear understanding of this structure at this time. Consequently, investor education is extremely important for the regulator to be active. He warned that if these activities were formally regulated, this market premium could disappear “within a day.”
Current Laws Lack ‘Red Line’ for Crypto Holdings
The absence of legislation governing how listed companies get involved in digital asset treasury arrangements is one of the challenges today. Mr Wong said some listed companies were “tempting to engage in such activities” right away. For existing listed companies seeking to invest in virtual currencies, the SFC could only encourage caution.
He explained the regulatory dilemma in setting a “red line” for listed companies now. For example, there is no clear cutoff as to how much Bitcoin a listed company can purchase. However, investing all available cash in a highly liquid but volatile asset such as Bitcoin exposes one to a high risk of loss.
He acknowledged that the market is in constant change now. However, the current laws do not deal actively with the new rules for new products. These new products are often high risk and low-transparency, and poorly understood by the public immediately. In conclusion, Mr. Wong affirmed that the SFC will research on whether to offer market guidelines on this issue.
Ultimately, if a DAT company applies to be IPO’d in Hong Kong, it is a rigorous process now. The company will have to fully convince the SFC and the HKEX to pass the successful review. Thus, the bar to list as a pure DAT is currently very high.
