Original Title: "Web3 Lawyer In-Depth Policy Interpretation | New Regulations for Virtual Asset Trading Platforms in Hong Kong (Part 1): 'Circular on the Sharing of Liquidity by Virtual Asset Trading Platforms'"
Original Source: Crypto Salad
On November 3, 2025, the Hong Kong Securities and Futures Commission (SFC) released two new circulars, clarifying the latest regulatory expectations for licensed virtual asset trading platform operators. These circulars introduced new requirements for increasing liquidity on virtual asset trading platforms and expanding the products and services offered by these platforms.
Riding the wave of FinTech Week, the SFC's announcements created quite a stir. As we know, the biggest challenge facing virtual asset trading platforms in Hong Kong today is the lack of profitability. The regulatory walls are built too high and solid, effectively blocking out "dirty things," but the market itself is stagnant, resembling a dead pool of water.
The SFC has clearly recognized this issue. As stated by the Executive Director of the SFC's Intermediaries Division, Yip Chi-hang, digital asset regulation should adhere to the principle of "small steps, quick wins," allowing for dynamic regulation through small-scale trial and error. This term is used very aptly, and the two circulars reflect its essence perfectly.
Today, Crypto Salad will analyze from a professional legal perspective, what new changes are there in regulation? How will they affect the next steps for exchanges?
About the "Circular on the Sharing of Liquidity by Virtual Asset Trading Platforms"
1. First-time Allowance for Virtual Asset Trading Platforms to Share Order Books with Overseas Affiliates
Firstly, a Shared Order Book refers to a unified order book managed and shared by two or more virtual asset trading platforms. It allows trading instructions from different platforms to be merged into the same matching system, forming a cross-platform liquidity pool.
In the traditional model, different trading platforms maintain independent order books. When users place orders, the platform registers and matches them 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 aggregate buy and sell orders into the same "trading pool" for matching, which is a source of increased liquidity.
Many people's first reaction might be, Can HashKey now connect to Binance? After all, sharing liquidity sounds imaginative, but to what extent can it actually be shared? Crypto Salad believes that, according to this circular, it is not yet possible.
First, the circular clearly states that the order book can only be shared between Hong Kong licensed trading platforms and their "global affiliates," meaning that HashKey Exchange can only access liquidity from other regional trading platforms that belong to the same group as HashKey Global, and cannot connect with non-affiliated platforms (such as Binance).
Second, even within the same group, not all trading platforms meet the requirements. The SFC has two layers of restrictions regarding the country (region) where the trading platform is located.
1) Both the VATP and the overseas platform must be legally licensed in their respective jurisdictions.
2) The overseas platform must be located in a country that is deemed "reliable" by Hong Kong.
The overseas platform must be situated in a country or region that is internationally recognized and has a sound regulatory framework, with specific requirements including:
• Must be a member of the Financial Action Task Force (FATF) or a similar organization;
• Must have regulatory policies that broadly align with FATF's anti-money laundering regulations and the International Organization of Securities Commissions (IOSCO) recommendations for market policies regarding crypto assets.
First, the country where the overseas platform is located must be recognized by Hong Kong. How is this determined? 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 website, which can be searched at https://www.fatf-gafi.org/en/countries.html.)
Meeting the hard identity requirements is not enough; soft power must also be in place: there must be regulatory policies for exchanges that meet international standards. For trading platforms already established in well-regulated regions like Japan, this requirement is easily met, as they are already under strict anti-money laundering and market regulatory systems, with similar licensing requirements. However, in countries like India, Turkey, and Mexico, which lack corresponding regulatory policies, even if a VATP has established a trading platform locally, it would not meet the conditions for liquidity sharing and would not be able to join the Hong Kong market.
Legal Basis:
Article 7 of the circular states: "The 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 in which the overseas platform operator operates must:
(a) be a member of the Financial Action Task Force (FATF) or a regional organization performing similar functions; and
(b) have effective regulation that is broadly consistent with the recommendations of the FATF and the Policy Recommendations for Crypto and Digital Asset Markets proposed by the International Organization of Securities Commissions regarding market misconduct and client asset protection."
2. Clarification of Risk Mitigation 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 held in the same system, various settlement risks may arise, such as settlement delays or failures.
This is a very real situation. In traditional securities trading, user assets are all held in the same clearing house (CCP, Central Counterparty), but in virtual asset exchanges, user assets are dispersed across different custodians, each operating independently. It is akin to everyone putting their money in one bag, where buying and selling can be directly allocated from that bag, but now it requires taking money from someone else's bag, raising risks such as taking nothing, taking too slowly, or taking the wrong amount.
Of course, this is a relatively extreme example; most legitimate 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 states that the shared order book must have a comprehensive set of rules that clearly outline the procedures and operations for all platform participants using the shared order book throughout the trading process. Moreover, these rules must be binding and enforceable for all parties involved (including Hong Kong and overseas platforms, custodians, and users), and should include:
Pre-payment
How to issue instructions
How to execute trades
How to settle
Violation management
How to handle changes in liability (if applicable)
The roles, rights, obligations, and responsibilities of each participant.
• Mandatory full prepayment, automatic verification, ensuring asset delivery
Article 10 of the circular states that platforms must establish an automated pre-trade verification mechanism to real-time verify whether a trading instruction meets: 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 assets and payment occur simultaneously, ensuring that the moment the buyer receives the goods, the seller receives the money; otherwise, the settlement will not be executed, which is the most effective way to avoid timing risks.
In simple terms, its implementation involves having both parties prepare their items first, with the clearing system verifying and confirming that both meet the conditions before completing the transfer, which is a typical practice of centralized exchanges. Hong Kong aims to achieve the level of DVP security in the virtual asset field that traditional securities clearinghouses have, addressing the risk of "settlement failure."
• Ensure daily settlements and intra-day settlements
Articles 14 and 15 of the circular stipulate that Hong Kong platforms must settle at least one transaction with overseas platforms daily and conduct intra-day settlements, setting an "unsettled transaction limit" to ensure that cross-border unsettled transactions do not snowball.
• Compensation arrangements
The circular outlines the compensation arrangements for platforms, with the core being that the risks of cross-border settlements must be borne by the trading platform. This means that Hong Kong platforms must independently assume full responsibility and cannot shift the risk to overseas platforms; for instance, if an overseas user defaults or an overseas platform fails to settle, the Hong Kong platform must compensate its clients.
Legal Basis:
Article 16 of the circular states: "The platform operator providing the shared order book must demonstrate robust financial capability to manage the shared order book and must assume full responsibility to its clients for transactions executed through the shared order book, as if such transactions were executed on the platform operator's own order book."
Additionally, the reserve funds must be kept separate from the platform's assets, held in trust, and must be designated for specific use, only for compensating clients. Moreover, the scale of the reserve funds must equal or exceed the unsettled transaction limit, meaning the more cross-border transactions the platform conducts, the more reserve funds must be prepared.
Legal Basis:
Article 17 of the circular states: "The platform operator must establish a reserve fund in Hong Kong, held in trust by the platform operator, designated for client compensation, to cover client losses arising from settlement failures. The scale of the reserve fund should not be less than the unsettled transaction limit and should be adjusted according to the expected unsettled transaction risks."
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 client virtual assets under custody. For settlement assets to be delivered, clients of the platform operator should enjoy the same level of protection. Therefore, the platform operator should purchase insurance or establish compensation arrangements to protect against potential losses of settlement assets (e.g., losses due to theft, fraud, or misappropriation), with the amount not less than that required in paragraph 10.22 of the 'Guidelines for Virtual Asset Trading Platforms.'"
3. Technical Challenges Behind Regulation
From an industry perspective, the Hong Kong government undoubtedly wants to increase liquidity on trading platforms, but it has also set very high thresholds, reflecting Hong Kong's consistent style of "dancing with shackles," echoing the SFC's principle of "small steps, quick wins." Behind this, the unique political and financial status of Hong Kong is certainly primary, but Crypto Salad believes that technical issues are also a potential driving factor for regulation.
In fact, when VATPs implement cross-border liquidity sharing, the biggest challenge is not meeting regulatory requirements or achieving the required capital reserves, but rather technical issues. The circular simply describes the technical cooperation model between platforms using vague terms like "joint management" and "connection," but does not address the technical interoperability issues that platforms must face regarding transaction links, matching systems, clearing processes, and even risk control modules. For professional technical teams, the real technical challenge is not "whether to connect" or "how to connect" the shared order book, but "how to connect safely within a compliance framework, operate stably, and ensure accountable delivery."
Moreover, from a compliance perspective, cross-border data protection standards vary across 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 shareholding relationship between OSL and Bybit, do they qualify as affiliated platforms that can 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 do not meet the criteria for "affiliated platforms"? These are just some of the details that legal professionals are concerned about.
Cross-border liquidity sharing may seem like it only connects two systems, but it is actually a deep integration project akin to a large-scale merger. Allowing only affiliated platforms to connect is not a long-term solution; the core challenge the industry needs to face is how to correctly complete every compliance detail under completely relaxed conditions.
4. Crypto Salad's Commentary
This circular once again indicates Hong Kong's regulatory stance: it is not about loosening restrictions, but about loosening them in a compliant manner. Overseas platforms with weak regulatory standards or insufficient compliance capabilities will find it difficult to join this system. If international platforms wish to access Hong Kong's shared order book, they must enhance their monitoring systems.
From a practical perspective, whether Hong Kong's pool has enough attractiveness to compel overseas trading platforms to reshape part of themselves to fit this puzzle is a key question. Crypto Salad believes that there is influence, but it will only affect platforms that already aim to conduct large-scale global compliance operations. For those retail platforms that rely on regulatory loopholes for survival, entering the Hong Kong market at this time is not an appropriate opportunity.
This article is from a submission and does not represent the views of BlockBeats.
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