Thailand finalises rules for domestic Bitcoin and Ethereum ETFs

Thailand's Securities and Exchange Commission said 11 regulatory notifications will take effect on Oct. 16, setting out a framework for cryptocurrency exchange-traded funds listed exclusively on the Stock Exchange of Thailand. The regulator announced the measures on Oct. 8. Only Bitcoin and Ethereum will qualify as underlying assets initially, and the SEC has not yet approved any ETF or indicated when trading might begin.

The framework is intended to capture part of a market dominated so far by the United States. According to the SEC's announcement, spot Bitcoin and Ethereum ETFs there have drawn about $70.37 billion in combined cumulative net inflows since launch. Data provider SoSoValue put the funds' combined net assets at about $121 billion as of Oct. 12.

Thailand is prioritising domestic products over foreign competitors. Under the new rules, the issuance and offering of investment products linked to overseas crypto ETFs, including depositary receipts, will initially be prohibited, and securities companies will be restricted from facilitating investments in foreign crypto ETFs for clients who do not qualify as institutional or ultra-high-net-worth investors. The SEC described the curbs as targeted rather than a blanket ban on overseas crypto exposure, saying they are meant to support the domestic ETF ecosystem and strengthen local financial institutions. Thai mutual funds and private funds, which previously could invest in foreign crypto ETFs but not domestic equivalents, may now invest in Thai-listed crypto ETFs within existing investment limits.

The regulator has also set operating conditions. Each ETF must passively track a single cryptocurrency and maintain average net exposure of at least 80% of net asset value to that asset over each accounting year. Asset managers must show adequate personnel, operational systems and service-provider arrangements, and digital assets must be held with custodians regulated by the Thai SEC. Securities companies may not extend margin loans for crypto ETF purchases, and investors must receive education on the products' characteristics and risks and formally acknowledge their understanding, with brokers required to emphasise diversification and risk tolerance. Licensed digital asset fund managers may take on outsourced investment management functions, and qualified digital asset businesses may apply to act as mutual fund supervisors.

The final rules follow consultations held between April and September, during which the SEC said most respondents supported the proposals. The framework takes effect on Oct. 16.