An in-depth interpretation of Hong Kong's new regulations on virtual asset trading platforms:

# Analysis of Hong Kong's New Virtual Asset Trading Platform Regulations

By Crypto Salad

Riding on the momentum of the FinTech Week, the two unexpected announcements from the Securities and Futures Commission (SFC) of Hong Kong have caused quite a stir. As we all know, the biggest predicament facing Hong Kong's virtual asset trading platforms today is the lack of profitability. The regulatory barriers have been built so high and solid that while they have indeed kept out "undesirable elements", they have also stagnated the local market, leaving it almost lifeless at one point.

The SFC has clearly recognized this issue. As Ip Chi-hang, Executive Director of the Intermediaries Division at the SFC, stated, the regulation of digital assets should adhere to the principle of "small, rapid steps", implementing dynamic supervision through incremental experimentation and error correction. This phrase is particularly apt, and the essence of this principle is perfectly reflected in the two Circulars issued.

Today, from the perspective of a professional lawyer, Crypto Salad will conduct an in-depth analysis of the new regulatory changes and their potential impacts on the future development of trading platforms.

## Regarding the "Circular on Liquidity Sharing among Virtual Asset Trading Platforms"

### I. First-time Permission for Virtual Asset Trading Platforms to Share Order Books with Their Overseas Affiliated Platforms

Firstly, a Shared Order Book refers to a unified Order Book jointly managed and shared by two or more virtual asset trading platforms. It can consolidate trading orders from different platforms into a single matching system, forming a cross-platform Liquidity Pool.

Under the traditional model, each trading platform maintains its own independent order book internally. After a user places an order, the platform records and matches the order within its internal system—a process known as "Order Matching". With the introduction of the shared order book mechanism, affiliated trading platforms in different countries or regions can pool their buy and sell orders into a single "trading pool" for matching, which serves as the source of increased liquidity.

Many people may immediately wonder if HashKey can now connect to Binance. Admittedly, liquidity sharing sounds promising, but to what extent can this sharing actually be achieved? From the perspective of this Circular, Crypto Salad believes that such a connection is not yet feasible for the following reasons.

1.  The Circular clearly stipulates that order books can only be shared between licensed Hong Kong exchanges and their "globally affiliated" virtual asset trading platforms. In other words, HashKey Exchange can only access liquidity from other regional trading platforms within the same HashKey Global group, and cannot connect to non-group platforms such as Binance.

2.  Even within the same group, not all exchanges meet the eligibility criteria. The SFC has imposed two tiers of restrictions on the countries or regions where the exchanges are located:

   1.  Both the Virtual Asset Trading Platform (VATP) and the overseas platform must hold valid licenses in their respective jurisdictions.

   2.  The country where the overseas platform is based must be "reliable"—and this reliability is defined by Hong Kong.

Overseas platforms must be located in countries or regions with internationally recognized and well-established regulatory frameworks. Specific requirements include:

- Being a member state of the Financial Action Task Force (FATF) or similar international organizations;

- Having regulatory policies that are broadly consistent with FATF's anti-money laundering regulations and the International Organization of Securities Commissions (IOSCO)'s Policy Recommendations for Crypto and Digital Asset Markets.

First of all, the country where the overseas platform is situated must be recognized by Hong Kong. How is this determined? Undoubtedly, being a member state or region of the FATF meets the basic requirement. (As of November 9, 2025, the FATF’s official website lists 40 member states/regions, which can be verified via the link: https://www.fatf-gafi.org/en/countries.html.)

Meeting this fundamental requirement alone is insufficient; the "soft power" of regulatory policies is also essential. Trading platforms operating in regions with sound regulations like Japan can easily meet this requirement, as they already operate under strict anti-money laundering and market supervision systems with similar licensing requirements. However, in countries lacking relevant regulatory policies—such as India, Turkey, and Mexico—even if a VATP establishes a local trading platform, it will not be eligible to connect to Hong Kong's liquidity network, even if it does not violate any local rules (due to the absence of applicable regulations).

**Legal Basis**

Clause 7 of the Circular stipulates: "A shared order book shall be jointly managed by the platform operator and the overseas platform operator licensed to conduct its activities in the relevant jurisdiction. The jurisdiction where the overseas platform operator conducts its business shall:

(a) Be a member of the Financial Action Task Force (FATF) or a regional organization performing functions similar to those of the FATF; and

(b) Have effective regulatory frameworks that are broadly consistent with the FATF Recommendations and IOSCO’s Policy Recommendations for Crypto and Digital Asset Markets concerning market misconduct and client asset protection."

### II. Clear Measures to Mitigate Trading and Settlement Risks

Clause 8 of the Circular clearly points out that when a Hong Kong platform shares an order book with an overseas platform, if the assets used for settlement are held in separate custody systems, various settlement risks may arise, such as settlement delays or failures.

This is a practical concern. In traditional securities trading, client assets are held by a centralized central counterparty (CCP). In contrast, virtual asset trading platforms often store client assets across multiple custodians, which operate independently with no mutual oversight. This scenario is analogous to a shift from everyone keeping money in a single pool—where transactions only involve transfers within that pool—to having to withdraw funds from others’ separate pools. This introduces additional risks, such as failed withdrawals, delayed transfers, or incorrect transaction amounts.

Of course, this is an extreme example. Most licensed and regulated trading platforms have qualified and secure custody arrangements. Nevertheless, to ensure the stability of cross-border liquidity sharing, Hong Kong has imposed the following requirements:

1.  **Unified Rules to Ensure Fair, Orderly, and Accountable Trading**

   Clause 9 of the Circular mandates that a comprehensive set of rules be formulated for the shared order book, specifying the procedures and operations for all platform participants throughout the entire trading process. These rules must be binding and enforceable for all parties, including Hong Kong and overseas platforms, custodians, and users. Key provisions should cover upfront payment requirements, order submission processes, transaction execution, settlement procedures, breach management, handling of liability changes (if applicable), and the roles, rights, obligations, and responsibilities of each participant.

2.  **Mandatory Full Upfront Payment and Automatic Verification to Ensure Asset Delivery**

   Clause 10 requires platforms to establish an automated pre-trade verification mechanism. This system must automatically and in real-time verify that each trading order meets three conditions: full upfront payment has been made, the assets are under custody, and the quantity is sufficient.

3.  **Establishment of a Delivery-Versus-Payment (DVP) Settlement Mechanism**

   DVP is a widely used financial settlement mechanism in most traditional securities markets. Under DVP, settlement is only completed when the delivery of assets and the payment of funds occur simultaneously. This ensures that the buyer receives the assets exactly when the seller receives the payment; otherwise, the settlement will not proceed. It is the most effective method to mitigate settlement timing risks.

   Simply put, DVP requires both buyers and sellers to have their respective assets and funds ready in advance. A clearing system verifies compliance with all conditions before finalizing the transfer— a typical practice among centralized exchanges. Hong Kong aims to achieve DVP-level security in the virtual asset sector, aligning with the standards of traditional securities clearing houses and addressing the risk of settlement failures.

4.  **Daily and Intra-day Clearing Requirements**

   Clauses 14 and 15 of the Circular stipulate that Hong Kong platforms must settle transactions with overseas platforms at least once daily and conduct intra-day clearing. An "unsettled transaction limit" must also be set to prevent cross-border unsettled transactions from snowballing into unmanageable volumes.

5.  **Compensation Arrangements**

   The Circular outlines compensation rules, emphasizing that trading platforms must bear ultimate responsibility for cross-border settlement risks. This means Hong Kong platforms must assume full liability independently and cannot shift risks to overseas platforms. For instance, in cases of overseas user defaults or settlement failures by overseas platforms, the Hong Kong platform remains obligated to compensate its clients.

**Legal Basis**

Clause 16 states: "The platform operator providing the shared order book shall demonstrate sound financial capabilities to manage the shared order book. It shall also bear full liability to its clients for transactions executed through the shared order book, as if such transactions were conducted on its own order book."

Additionally, reserve funds must be segregated from the platform’s own assets, held in trust, and earmarked exclusively for client compensation. The size of the reserve funds must be equal to or exceed the unsettled transaction limit, meaning platforms engaging in more cross-border transactions must maintain larger reserve funds.

**Legal Basis**

Clause 17 specifies: "The platform operator shall establish a reserve fund in Hong Kong, held in trust by the operator and designated for compensating clients for losses arising from settlement failures. The size of the reserve fund shall not be less than the unsettled transaction limit and shall be adjusted based on the anticipated risks associated with unsettled transactions."

Clause 18 provides: "Pursuant to paragraph 10.22 of the Guidelines for Virtual Asset Trading Platforms, the platform operator must have compensation arrangements in place to cover potential losses of clients’ custodied virtual assets. Clients of the platform operator shall be entitled to the same level of protection for settlement assets to be delivered. Therefore, the platform operator shall purchase insurance or establish compensation arrangements to cover potential losses of settlement assets (e.g., losses due to theft, fraud, or misappropriation), with coverage amounts no less than those required under paragraph 10.22 of the Guidelines for Virtual Asset Trading Platforms."

### III. Technical Challenges Behind the Regulations

From an industry perspective, the Hong Kong government undoubtedly aims to boost liquidity for local exchanges while maintaining strict thresholds—a typical Hong Kong-style approach of "dancing with shackles", which aligns with the SFC’s principle of "small, rapid steps". Beyond Hong Kong’s unique political and financial status, Crypto Salad believes technical issues also play a crucial role in shaping these regulations.

In fact, the greatest obstacle to cross-border liquidity sharing for VATPs is not meeting regulatory requirements or reserve fund thresholds, but technical challenges. The Circular only uses general terms like "joint management" and "connection" to describe the technical cooperation model between platforms, without addressing critical technical interoperability issues such as trading links, matching systems, clearing processes, and risk control modules. For professional technical teams, the core challenge is not whether or how to connect to the shared order book, but how to achieve secure connectivity, stable operations, and accountable settlement within the regulatory framework.

Furthermore, from a compliance standpoint, cross-border data protection standards vary across jurisdictions. Unresolved questions include: Which types of data can be transferred cross-border and shared? Who bears responsibility for data security? Is there a clearer definition of "affiliated platforms"? For example, if OSL and Bybit have implicit equity ties, would they qualify as affiliated platforms eligible for liquidity sharing? Even within the same group, overseas entities may have entirely different IT systems and risk control modules—would this disqualify them as "affiliated platforms"? These are just a few of the details that legal professionals have noted.

While cross-border liquidity sharing may seem like a simple connection between two systems, it is essentially a large-scale integration project comparable to a major merger. Restricting connectivity to affiliated platforms is not a long-term solution. The core industry challenge lies in how to fully comply with all regulatory requirements when liquidity sharing is fully liberalized in the future.

### IV. Crypto Salad’s Commentary

This Circular reaffirms Hong Kong’s regulatory stance: it is not refusing to open up the market, but rather promoting liberalization under strict compliance standards. Overseas platforms with weak regulatory frameworks or inadequate compliance capabilities will struggle to participate in this system. International platforms seeking access to Hong Kong’s shared order book must upgrade their monitoring and compliance systems accordingly.

From a practical perspective, a key question arises: Is Hong Kong’s market attractive enough to persuade overseas trading platforms to restructure their operations to integrate with Hong Kong’s regulatory framework? Crypto Salad believes that while Hong Kong’s new rules will have an impact, this will be limited to platforms already pursuing large-scale global compliant business. For retail-oriented platforms that rely on regulatory loopholes to operate, now is not an opportune time to enter the Hong Kong market.

### Disclaimer

The market is inherently risky, and investing requires prudence. This article does not constitute investment advice. Readers should assess whether any opinions, viewpoints, or conclusions contained herein align with their individual circumstances. Investors shall bear full responsibility for any decisions made based on the information provided.