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The Hong Kong Securities and Futures Commission (SFC) recently published new guidance to licensed virtual asset trading platforms (VATPs) to enable them to tap global liquidity and broaden their product and service offerings subject to meeting requisite requirements.
The guidance, in the form of two circulars, makes significant strides under Pillars A (Access) and P (Products) of the SFC's ASPIRe Roadmap to enhance the security, innovation and growth of Hong Kong's virtual asset (VA) market:
- The circular on shared liquidity by VATPs sets out the SFC's regulatory approach and expected standards for VATPs to integrate their order books with those of affiliated overseas VATP operators, enabling orders to be combined into an aggregate shared liquidity pool (Liquidity Sharing Circular).
- The circular on expansion of products and services of VATPs modifies and updates various regulatory requirements to broaden the range of products and services that can be offered by VATPs (Products & Services Circular).
In this briefing, we set out some key takeaways from the latest guidance as well as the SFC's ASPIRe Roadmap more broadly. An overview of the key requirements under the two circulars is set out at the end of the briefing.
Please do not hesitate to reach out to any of us (contact details below) or your regular Herbert Smith Freehills Kramer contact.
Next steps for VATPs seeking to leverage the latest guidance
VATPs seeking to offer shared order books or broaden their range of products and services should:
- Review their operations and assess whether they are able to comply with all relevant regulatory requirements;
- Make any necessary changes to policies, internal controls and procedures to ensure compliance;
- Seek approval from the SFC where required; and
- Provide training to staff on the new procedures and requirements.
Hong Kong's aspirations and game plan – the ASPIRe Roadmap
The SFC set the tone at the beginning of the year with the ASPIRe Roadmap. Much headway has been made to advance the five pillars in the roadmap: Access, Safeguards, Products, Infrastructure and Relationships, with the launch and publication of:
- Digital Asset Consultative Panel meetings since February 2025;
- Circular guidance on VA staking services issued in April 2025 (guidance was also issued by the Hong Kong Monetary Authority (HKMA));
- Joint consultation launched in June 2025 by the SFC and the Financial Services and the Treasury Bureau (FSTB) on proposed licensing regimes for VA dealing and custodian services;
- Circular guidance issued in August 2025 on the safe custody of client VAs by VATP operators; and
- Supplemental circular guidance issued jointly with the HKMA in September 2025 to introduce refinements and relaxations to the requirements on intermediaries' VA-related activities.
Looking ahead
We expect the flurry of activities in the digital assets space to continue:
- As a next step to the Liquidity Sharing Circular, the SFC will explore the feasibility of allowing licensed brokers to direct client orders to regulated overseas liquidity pools within the same group.
- The FSTB and the SFC aim to introduce a Bill into the Legislative Council in 2026 to establish the licensing regimes for VA dealing (including VA advisory and management) and VA custodian services.
- The SFC is considering introducing VA derivatives trading for professional investors with robust risk management measures in place.
- The SFC is planning to introduce automated reporting and data surveillance tools to build a line of defence against the risks associated with VAs.
Overview of key requirements under the latest circulars
Liquidity Sharing Circular
The aim of the circular is to improve market efficiency, provide Hong Kong investors with access to deeper global liquidity, tighten price spreads, and enhance price discovery, to attract global platforms, order flows and liquidity providers to Hong Kong.
VATP operators must obtain written approval from the SFC prior to offering shared order books. The terms and conditions for operating a shared order book will be imposed on their licences. A summary of the requirements is set out below.
| Eligible affiliated overseas VATP operators |
A shared order book should be managed jointly by the VATP operator and its affiliated overseas VATP operator licensed in the relevant jurisdiction for conducting its activities. The relevant jurisdiction must be a member of the Financial Action Task Force (FATF) or an FATF-style regional body, and should have effective regulation substantially aligned with the FATF recommendations as well as the IOSCO's Policy Recommendations for Crypto and Digital Asset Markets with respect to market abuse and client asset protection. |
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Trading and settlement risk
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The shared order book:
A VATP operator should ensure fair and orderly trading in the shared order book, and provide participants with equal access to order book data. |
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A VATP operator should design its operational workflow to mitigate unsettled trade exposure and related operational risks, including implementing a delivery-versus-payment settlement mechanism to ensure simultaneous exchange of assets with its affiliated overseas VATP operator. All trades with the overseas VATP should be settled at least once a day. Unsettled trade exposure should be limited to a pre-defined threshold through intraday settlements. |
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A VATP operator should maintain a reserve fund of the required size in Hong Kong, held on trust by the VATP operator and designated for client compensation. It should also have in place an insurance or compensation arrangement for the required amount to cover potential losses of settlement assets. |
| Market misconduct risk |
A VATP operator should implement a unified programme for surveillance of trading activities jointly with the affiliated overseas VATP operator across the shared order book, rather than segmenting oversight by its clients' onboarding jurisdiction. It is required to designate at least one Responsible Officer or Manager-in Charge to oversee the joint surveillance programme and ensure the programme's effectiveness and compliance with the SFC's requirements. In addition, it should promptly provide shared order book data to the SFC upon request. |
| Other requirements | Other requirements, including those relating to cybersecurity, record keeping, disclosure of risks to clients, and the access of the shared order book by retail clients, are also highlighted in the circular. |
Products & Services Circular
The SFC recognises that restriction on the types of products and services which can be made available by licensed VATPs has been a challenging obstacle for global operators looking to enter the Hong Kong market. This circular is a positive step towards bridging market interest with a view to meeting the diverse needs of different investor categories.
| Token admission |
The SFC no longer requires VAs (including stablecoins) to have a 12-month track record before a VATP offers them to professional investors. In addition, stablecoins issued by HKMA-licensed stablecoin issuers are not subject to the 12-month track record requirement and may be offered to retail investors. See modified licensing conditions in Appendix I to the circular. The 12-month track record requirement still applies to retail investor offerings of other virtual assets. |
| Distribution of digital asset-related products and tokenised securities |
The SFC proposes to amend the standard set of licensing conditions to explicitly permit VATPs to:
See Appendices II and III to the circular. VATPs interested in the above licensing modifications are encouraged to submit an application to the SFC for approval. |
| Custody of tokens not traded on VATPs |
VATPs may apply to modify their licensing conditions to offer custody services through their associated entities for digital assets that have not been made available for trading on their VATPs. For VATPs that have not completed the second-phase assessment, the SFC may permit custody of tokenised securities – but not other digital assets – on a case-by-case basis. See Appendix II to the circular. |
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
