In-depth interpretation of the new regulations for virtual asset trading platforms in Hong Kong: "Circular on the Sharing of Liquidity by Virtual Asset Trading Platforms"

Written by: encryption salad

Riding on the momentum of FinTech Week, the Hong Kong Securities and Futures Commission's two announcements came as a shock, creating quite a stir. As we all know, the biggest dilemma facing virtual asset trading platforms in Hong Kong today is that they can't make money. The regulatory walls have been built too high and too solidly, which indeed blocks out the “dirty stuff,” but it also prevents the market from circulating, making it nearly indistinguishable from a stagnant pool.

The Hong Kong Securities and Futures Commission has clearly recognized this issue. As stated by the Executive Director of the SFC Intermediaries Supervision Department, Yip Chi Hang, the regulation of digital assets should adhere to the principle of “small steps, quick runs,” conducting dynamic regulation through small-scale trial and error. This term is used very cleverly, and the two circulars perfectly embody its essence.

Today, the encryption salad will analyze in depth from the perspective of professional lawyers, what new changes are there in regulation? How will it affect the next development of exchanges?

Regarding the “Circular on the Sharing of Liquidity by Virtual Asset Trading Platforms”

1. For the first time, virtual asset trading platforms are allowed to share the listing book with their overseas affiliated platforms.

First of all, the Shared Order Book refers to a unified order book managed and shared by two or more virtual asset trading platforms. It can merge trading orders from different platforms into the same matching system, forming a cross-platform liquidity pool.

In the traditional model, different trading platforms maintain their own independent order books. After users place orders or post orders, the platform registers them in its internal system and matches them for execution; this step is called “Order Matching.” With the introduction of a shared order book mechanism, associated trading platforms from different countries or regions can aggregate buy and sell orders into the same “trading pool” for trade matching, which is the source of increased liquidity.

So many people's first reaction might be, can HashKey now connect to Binance? After all, sharing liquidity sounds very imaginative, but to what extent can it actually be shared? According to this circular, the encryption salad believes that it is not yet possible to achieve this.

First, the “Circular” clearly states that the listing book can only be shared between Hong Kong licensed exchanges and their “global affiliates” virtual asset trading platforms. This means that Haskey Exchange can only access the liquidity of other regional trading platforms within the same group as HashKey Global and cannot connect with non-group platforms (such as Binance).

Second, even within the same group, not all exchanges meet the requirements. The SFC has two layers of restrictions on the countries (regions) where the exchanges are located:

1. Both VATP and overseas platforms must be legally licensed in their respective jurisdictions.

2. The country where the overseas platform is located must be “reliable,” or rather “reliable” as defined by Hong Kong.

Overseas platforms must be located in countries or regions that are internationally recognized and have sound regulations, with specific requirements including:

Must be a member country of the Financial Action Task Force (FATF) or similar organizations.

With regulatory policies in place, the content of the policies generally aligns with the FATF's anti-money laundering regulations and the International Organization of Securities Commissions (IOSCO) market policy recommendations for encryption assets.

First, the country where the overseas platform is located must be a country or region recognized by Hong Kong. How to determine this specifically? If it is a member country (region) of the FATF, then it undoubtedly meets the requirements. (As of November 9, 2025, there are 40 member countries/regions listed on the FATF official website, which can be searched on the official website.)

Meeting the hard requirements for identity is not enough; soft power must also be in place: regulatory policies for exchanges must meet international standards. For trading platforms that have already established a presence in regions with well-developed regulations like Japan, this requirement is easily met, as they are already under strict anti-money laundering and market regulatory systems, and have similar licensing requirements. However, in countries lacking corresponding regulatory policies, such as India, Turkey, and Mexico, even if a VATP has established a trading platform locally and is not in violation (because there are no regulations to follow), it certainly does not meet the conditions for liquidity connectivity and cannot sit at the table in Hong Kong.

Legal basis:

Article 7 of the “Circular” stipulates: "The shared listing book shall be jointly managed by the platform operator and the overseas platform operator licensed to carry out its activities in the relevant jurisdiction. The jurisdiction where the overseas platform operator operates shall:

(a) members of Financial Action Task Force (FATF) or regional organizations performing similar functions 1; and

(b) has effective regulation that broadly aligns with the special organizational recommendations and the Policy Recommendations for Crypto and Digital Asset Markets proposed by the International Organization of Securities Commissions regarding market violations and the protection of client assets.

2. Clarify the risk avoidance measures for trading and settlement.

Article 8 of the Circular clearly states that when a Hong Kong platform shares an order book with an overseas platform, but the assets used for settlement are not custodied within the same system, various settlement risks may arise, such as settlement delays and settlement failures.

This is a very realistic situation. In traditional securities trading, users' assets are all placed in the same clearing house (CCP, Central Counterparty), but in virtual asset exchanges, users' assets are dispersed across different custodians, with each custodian operating independently and without interference. It's akin to everyone originally putting their money in one bag, and transactions were made directly from that bag. However, now it's necessary to pull money from someone else's bag, which raises certain risks in trading, such as how to avoid pulling out empty, pulling out too slowly, or pulling out the wrong amount.

Of course, this is a relatively extreme example. Most regulated and licensed exchanges have qualified professionalism and security in their custody arrangements. However, to ensure more robust cross-border liquidity sharing, Hong Kong has established the following requirements:

Unified rules to ensure fair, orderly, and accountable trading: Article 9 of the Circular stipulates that a comprehensive set of rules should be developed for the shared order book, clearly defining the procedures and operations for all platform participants in the entire trading process using the shared order book. Moreover, these rules must be binding and enforceable for all parties involved (including Hong Kong and overseas platforms, custodians, and users), and should include: advance payment, how to issue instructions, how to execute trades, how to settle, violation management, how to handle changes in liability (if applicable), and the roles, rights, obligations, and responsibilities of each participant.

Mandatory full prepayment, automatic verification, ensuring asset delivery: Article 10 of the “Circular” stipulates that the platform must establish an automated pre-trade verification mechanism to automatically verify in real-time whether a trade instruction meets the following criteria: full prepayment, assets have been custodied, and sufficient quantity.

Establish a Delivery-Versus-Payment (DVP) settlement mechanism: DVP is a financial settlement mechanism widely used in most traditional securities markets. Using DVP means that settlement is only considered complete when the delivery of the asset and the payment occur simultaneously, ensuring that the moment the buyer receives the goods is the same moment the seller receives the money; otherwise, the settlement will not be executed, making it the most effective method to avoid timing risks. Its implementation method, simply put, is to have both parties prepare the items first, and after verification by the clearing system, confirm that both parties meet the conditions before completing the transfer, which is a typical practice of centralized exchanges. Hong Kong hopes to achieve a level of security in the virtual asset space equivalent to that of traditional securities clearinghouses in terms of DVP to address the risk of “settlement failure.”

Ensure daily settlement and intraday settlement: Articles 14 and 15 of the Circular stipulate that Hong Kong platforms must settle at least one transaction with overseas platforms every day and conduct intraday settlement, setting a “maximum unsettled transaction limit” to ensure that cross-border unsettled transactions do not snowball.

Compensation Arrangement: The “Circular” stipulates the compensation arrangement of the platform, with the core being that the risks of cross-border settlement must be borne by the trading platform. This means that the Hong Kong platform must independently assume all responsibilities and cannot pass the risks on to overseas platforms. For instance, in cases of overseas user default or failure of overseas platform settlement, the Hong Kong platform must also compensate the customers.

Legal basis:

Article 16 of the “Circular” stipulates: “Operators of platforms providing shared order books must demonstrate sound financial capability to manage the shared order book, and they shall bear full responsibility to their clients for transactions executed through the shared order book, as if such transactions were executed on the operator's own order book.”

In addition, reserve funds must be held independently of the platform's assets, clearly in the form of a trust, and must be designated for a specific purpose, solely for compensating clients. Furthermore, the scale of reserve funds must be equal to or greater than the limit of unsettled transactions, which means that the more cross-border transactions the platform conducts, the more reserve funds must be prepared.

Legal basis:

Article 17 of the “Circular” stipulates: “Platform operators must establish a reserve fund in Hong Kong, held in trust by the platform operators, and designated for customer compensation to cover customer losses arising from settlement failures. The scale of the reserve fund shall not be less than the upper limit of unsettled transactions and shall be adjusted according to the expected risks of unsettled transactions.”

Article 18 of the Circular states: “According to paragraph 10.22 of the Guidelines for Virtual Asset Trading Platforms, platform operators must have compensation arrangements to protect against potential losses of customer virtual assets under custody. For settlement assets to be delivered, the customers of the platform operators should enjoy an equivalent level of protection. Therefore, the platform operators should purchase insurance or establish compensation arrangements to protect against potential losses of settlement assets (such as losses due to theft, fraud, or misappropriation), the amount of which must not be less than the amount required by paragraph 10.22 of the Guidelines for Virtual Asset Trading Platforms.”

Three, the technical challenges behind regulation

From an industry perspective, the Hong Kong government undoubtedly wants to increase the liquidity of exchanges, but at the same time has set very high thresholds, reflecting Hong Kong's consistent style of “dancing with shackles,” which echoes the SFC's principle of “taking small steps quickly”. Behind this, the special nature of Hong Kong's political and financial status is certainly paramount, but the encryption salad believes that technical issues are also a potential driving factor for regulation.

In fact, when VATP achieves cross-border shared liquidity, the biggest challenge is not actually meeting regulatory requirements or reaching the amount of capital reserves, but rather the technical issues. The circular simply describes the technical cooperation model between platforms with vague terms like “joint management” and “interconnection”, but does not mention the technical interoperability issues that platforms must face, such as transaction links, matching systems, clearing processes, and risk control modules. For professional technical teams, the real technical challenge is not “whether it can connect” or “how to connect” the shared order books, but rather “how to securely connect, operate stably, and deliver accountably within the compliance framework.”

In addition, from a compliance perspective, the standards for cross-border data protection are inconsistent across different countries/regions. Which data can be shared across borders, who is responsible? Is there a clearer definition of “affiliated platforms”? For example, if there is an implicit equity relationship between OSL and Bybit, do they qualify as affiliated platforms that can share liquidity? Even if they are overseas entities under the same group, if their IT systems and risk control modules are completely different, does that mean they do not meet the definition of “affiliated platforms”? These are just some details that legal professionals are concerned about.

Cross-border shared liquidity seems to merely connect two systems, but in reality, it is equivalent to a deep integration project of a large-scale merger and acquisition. Allowing only the interconnection between related platforms is not a permanent solution. The core challenge that the industry needs to face is how to correctly complete every compliance detail under fully liberalized conditions.

4. Encryption Salad Review

This circular once again indicates Hong Kong's regulatory stance: it is not about loosening restrictions, but rather about loosening them in a compliant manner. Overseas platforms with weak regulatory standards or insufficient compliance capabilities find it difficult to join this system. If international platforms wish to access Hong Kong's shared listing registry, they must enhance their monitoring systems.

From a practical perspective, does Hong Kong's pool have enough attraction and can it compel overseas trading platforms to reshape part of themselves to fit into this puzzle of Hong Kong? Salad believes that there is an influence, but it will only affect platforms that already want to engage in large-scale compliant operations globally. For those retail platforms that rely on regulatory loopholes for survival, entering the Hong Kong market at this time is not yet an appropriate opportunity.