Web3 Lawyers' In-Depth Policy Analysis | New Regulations for Hong Kong Virtual Asset Trading Platforms (Part 1): The Circular Regarding the Sharing of Liquidity among Virtual Asset Trading Platforms

On November 3, 2025, the Hong Kong Securities and Futures Commission (SFC) issued two new circulars in one go, clarifying the latest regulatory expectations for SFC-licensed virtual asset trading platform operators, and putting forward new requirements for increasing the liquidity of virtual asset trading platforms and expanding the products and services offered by the platforms.

Riding the wave of Fintech Week, the Hong Kong Securities and Futures Commission's two announcements have caused quite a stir. We all know that the biggest problem facing Hong Kong's virtual asset trading platforms today is the lack of profitability. The regulatory walls are too high and too solid, effectively blocking out "dirty stuff," but the market itself can't circulate, becoming almost stagnant.

The Hong Kong Securities and Futures Commission (SFC) is clearly aware of this issue. As Ye Zhiheng, Executive Director of the Intermediaries Division of the SFC, stated, digital asset regulation should adhere to the principle of "small steps, quick progress," conducting dynamic regulation through trial and error. This term is used very aptly, and the two circulars perfectly capture its essence.

Today, Crypto Lawyers will provide an in-depth analysis from a professional legal perspective: what new changes have occurred in regulation, and how will they affect the future development of exchanges?

Circular Regarding the Sharing of Liquidity Among Virtual Asset Trading Platforms

I. For the first time, virtual asset trading platforms are permitted to share their listing lists with their overseas affiliates.

First, a shared order book refers to a unified order book jointly managed and shared by two or more virtual asset trading platforms. It can merge trading orders from different platforms into a single matching system, forming a cross-platform liquidity pool.

In the traditional model, different trading platforms maintain their own independent order books. After a user places an order or places a pending order, the platform registers it in its internal system and matches the trades. This step is called "order matching." With the introduction of a shared order book mechanism, trading platforms in different countries or regions can pool their buy and sell orders into the same "trading pool" for matching, which is the source of increased liquidity.

Many people's first reaction might be, "Can HashKey be integrated with Binance now?" After all, sharing liquidity sounds very imaginative, but to what extent can it actually be shared? CryptoShalu believes that, based on this circular, it is not possible at the moment.

First, the circular clearly stipulates that the listing register can only be shared by Hong Kong licensed exchanges and their “globally affiliated” virtual asset trading platforms. In other words, Haskey Exchange can only access the liquidity of other regional trading platforms within the HashKey Global group, and cannot connect with non-group platforms (such as Binance).

Second, even within the same group, not all exchanges meet the requirements. The SFC imposes two layers of restrictions on the country (region) where the exchange is located:

1) Both VATP and the overseas platform must be legally licensed in their respective jurisdictions.

2) The country where the overseas platform is located must be "reliable" enough, or "reliable" according to Hong Kong's definition.

Overseas platforms must be located in internationally recognized countries or regions with sound regulations . Specific requirements include:

• It must be a member of the Financial Action Task Force (FATF) or a similar organization;
• It has regulatory policies in place, and the content of these policies generally complies with the FATF's anti-money laundering regulations and the International Organization of Securities Commissions' (IOSCO) market policy recommendations for crypto assets.

First, the overseas platform must be located in a country or region recognized by Hong Kong. How is this determined? If it's a member state (or region) of the FATF, then it undoubtedly meets the requirements. (As of November 9, 2025, the FATF website lists 40 member states/regions; you can find more information at https://www.fatf-gafi.org/en/countries.html.)

Meeting the hard requirements for residency is not enough; soft power is also essential: a platform must possess exchange regulatory policies that meet international standards. For trading platforms already operating in well-regulated regions like Japan, this requirement is easily met, as they are already under strict anti-money laundering and market supervision systems and have similar licensing requirements. However, in countries lacking such regulatory policies, such as India, Turkey, and Mexico, even if a VATP establishes a trading platform there, even if it doesn't violate regulations (because there are no applicable rules), it certainly doesn't meet the conditions for connecting liquidity and cannot be listed on the Hong Kong exchange.

Legal basis:

Article 7 of the Circular stipulates: "The shared disk list shall be jointly managed by the platform operator and the overseas platform operator licensed to conduct its activities in the relevant jurisdiction. The jurisdiction in which the overseas platform operator operates shall be:"

(a) A member of a financial action special organization (the Special Organization) or a regional organization 1 performing functions similar to the Special Organization; and

(b) Possess effective regulation that is broadly consistent with the recommendations of special organizations and the International Organization of Securities Commissions' "Policy Recommendations for Crypto and Digital Asset Markets" regarding market misconduct and client asset protection.

II. Clarify risk mitigation measures for transactions and settlements.

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 held in the same system, various settlement risks may arise, such as settlement delays or settlement failures.

This is a very real situation. In traditional securities trading, user assets are all held in the same clearinghouse (CCP, Central Counterparty). However, in virtual asset exchanges, user assets are dispersed among different custodian institutions, each operating independently without interference. It's like how, previously everyone kept their money in one bag, and transactions were directly transferred from that bag. Now, however, it involves taking money from other people's bags. This raises concerns about avoiding situations like emptying the bag, slow transfers, or incorrect amounts, increasing the inherent risks of trading.

Of course, this is a rather extreme example; most legitimate licensed exchanges have custody arrangements that demonstrate adequate professionalism and security. However, to ensure more robust cross-border liquidity sharing, Hong Kong has established the following requirements:

• Unified rules ensure fair, orderly, and accountable transactions.
• Article 9 of the Circular stipulates that the shared trading register should establish a comprehensive set of rules clearly defining the procedures and operations for all platform participants to aggregate and use the shared trading register throughout the entire trading process. Furthermore, these rules must be binding and enforceable on all participants (including Hong Kong and overseas platforms, custodians, and users), and should include:
• Prepayment, how to issue instructions, how to execute transactions, how to settle accounts, liability 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-transaction verification mechanism to automatically verify in real time whether a transaction instruction meets the following conditions: full prepayment, assets have been held in custody, and the quantity is sufficient.
• Establish a Delivery-Versus-Payment (DVP) settlement mechanism
• Deliverable Payment (DVP) is a financial settlement mechanism widely used in most traditional securities markets. Using DVP means that settlement is only complete when the delivery of the asset and payment occur simultaneously, ensuring that the moment the buyer receives the goods is the same moment the seller receives the money; otherwise, settlement will not be executed. This is the most effective method to avoid timing risk.
• In simple terms, its implementation involves both buyers and sellers preparing their assets beforehand. The clearing system verifies these assets and only completes the transfer after confirming that both parties meet the conditions. This is a typical practice of centralized exchanges. Hong Kong aims to achieve the same level of DVP security in the virtual asset sector as traditional securities clearinghouses, thus mitigating the risk of "settlement failure."
• Guarantee daily clearing and settlement.
• Articles 14 and 15 of the Circular stipulate that Hong Kong platforms must settle transactions with overseas platforms at least once a day and conduct intraday settlements, setting an "unsettled transaction cap" to ensure that cross-border unsettled transactions do not snowball.
• Compensation Arrangements
• The circular stipulates the platform's compensation arrangements, the core of which is that the trading platform must bear the risks of cross-border settlement. This means that Hong Kong platforms must independently assume full responsibility and cannot shift the risks to overseas platforms. For example, if overseas users default or overseas platforms fail to settle accounts, Hong Kong platforms must also compensate their customers.

Legal basis:

Article 16 of the Circular states: "Platform operators that provide shared listings shall demonstrate sound financial capacity to manage the shared listings and shall be fully liable to their customers for transactions executed through the shared listings as if such transactions were executed on the platform operator's own listings."

Furthermore, reserve funds must be separate from platform assets, explicitly held in a trust, and used exclusively for compensating customers. Moreover, the size of the reserve funds must equal or exceed the outstanding transaction limit, meaning the more cross-border transactions the platform undertakes, the more reserve funds it must prepare.

Legal basis:

Article 17 of the Circular stipulates that: "Platform operators shall establish a reserve fund in Hong Kong, which shall be held in trust by the platform operator and designated for customer compensation to cover customer losses caused by settlement failures. The size 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 stipulates: "In accordance with paragraph 10.22 of the Virtual Asset Trading Platform Guidelines, platform operators must establish indemnification arrangements to protect against potential losses of escrowed client virtual assets. Clients of the platform operator should enjoy the same level of protection for settlement assets to be delivered. Therefore, platform operators should purchase insurance or establish indemnification arrangements to protect against potential losses of settlement assets (such as losses due to theft, fraud, or misappropriation), and the amount shall not be less than the amount required by paragraph 10.22 of the Virtual Asset Trading Platform Guidelines."

III. The Technical Challenges Behind Regulation

From an industry perspective, the Hong Kong government undoubtedly wants to increase exchange liquidity, but it has also set high barriers to entry, reflecting Hong Kong's consistent approach of operating with constraints, echoing the SFC's "small steps, quick progress" development principle. While Hong Kong's unique political and financial status is undoubtedly the primary reason for this, CryptoShalu believes that technological issues are also a potential driving force behind regulation.

In reality, the biggest challenge in achieving cross-border shared liquidity through VATP is not meeting regulatory requirements or reaching the required amount of funds, but rather the technical issues. The circular simply uses general terms like "joint management" and "interconnection" to describe the technical cooperation model between platforms, but fails to address the crucial interoperability issues between transaction chains, matching systems, clearing processes, and even risk control modules. For professional technical teams, the real technical challenge is not "whether or how to connect" to the shared trading register, but rather "how to securely connect, operate stably, and ensure traceable settlement within a compliant framework."

Furthermore, from a compliance perspective, cross-border data protection standards vary across countries and regions. What data can be shared across borders, and who is responsible? Is there a clearer definition of "related platforms"? For example, if OSL and Bybit have an implicit shareholding relationship, do they qualify as related platforms and share liquidity? Even if they are overseas entities within the same group, if their IT systems and risk control modules are completely different, does that mean they don't qualify as "related platforms"? These are just some of the details that legal professionals focus on.

Cross-border shared liquidity may seem like just connecting two systems, but it is actually a deep integration project equivalent to a large-scale merger and acquisition. Simply allowing connections between related platforms is not a permanent solution. The core challenge that the industry needs to face is how to properly complete every compliance detail while fully opening up the market.

IV. Review of the Encrypted Salad

This circular reiterates Hong Kong's regulatory stance: it's not about not opening up, but about opening up in a compliant manner. Overseas platforms with weaker regulatory standards or insufficient compliance capabilities will find it difficult to join this system. International platforms wishing to access Hong Kong's shared data storage system must upgrade their monitoring systems.

From a practical perspective, is Hong Kong's trading pool attractive enough to force overseas trading platforms to reshape parts of themselves to fit Hong Kong's needs? Sha Lu believes that it has influence, but it will only affect platforms that want to do large-scale compliant business globally. For retail trading platforms that rely on regulatory loopholes for survival, entering the Hong Kong market at this time is not a suitable opportunity.

This article represents the author's personal views only and does not constitute legal advice or opinion on any specific matter.