Hong Kong Virtual Asset Trading Platform New Regulation Interpretation (Part 1): "Circular on Shared Liquidity for Virtual Asset Trading Platforms"

Original Title: "Web3 Lawyer In-Depth Policy Analysis | Hong Kong Virtual Asset Trading Platform New Regulation (Part 1): Letter on Shared Liquidity of Virtual Asset Trading Platform"
Original Source: Crypto Law

On November 3, 2025, the Hong Kong Securities and Futures Commission (SFC) released two new circulars simultaneously, clarifying the latest regulatory expectations for SFC-licensed virtual asset trading platform operators. The circulars outlined 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 SFC's two sudden moves also caused quite a stir. We all know that the biggest challenge facing Hong Kong's virtual asset trading platforms today is the lack of revenue. The regulatory barriers are too high and solid, effectively blocking out the "dirty stuff," but their own market also cannot get a proper circulation going and is almost indistinguishable from stagnant water.

The SFC clearly recognized this issue. As Willy Yip, Executive Director of the SFC's Intermediaries Division, stated, digital asset regulation should adhere to the principle of "agile regulation" and engage in dynamic regulation through iterative trial and error. This term is used very cleverly, and the two circulars also perfectly embody its essence.

Today, Crypto Law will conduct an in-depth analysis from a professional legal perspective to explore what the new regulatory changes are and how they will impact the next development steps of exchanges.

About the "Letter on Shared Liquidity of Virtual Asset Trading Platforms"

1. First-time allowance for virtual asset trading platforms to share order books with their overseas affiliated platforms

Firstly, a Shared Order Book is defined as a unified order book managed and shared by two or more virtual asset trading platforms. It can combine trading instructions from different platforms into the same matching system, creating a cross-platform liquidity pool.

In the traditional model, different trading platforms each maintain independent order books internally. After users place orders, the platforms register and match trades within their internal systems, a step known as "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.

Many people's immediate reaction might be, "Can HashKey now connect to Binance?" After all, shared liquidity sounds very imaginative, but to what extent can actual sharing be achieved? Crypto Law believes that based on this circular, it is not achievable for now.

First, the Guideline clearly states that the listing platform can only share liquidity with virtual asset trading platforms that are part of its "global affiliation" by a Hong Kong-licensed exchange, which means that Haskey Exchange can only access liquidity from HashKey Global's group-affiliated platforms in other regions, and cannot connect with non-group platforms (e.g., Binance).

Second, even within the same group, not all trading platforms meet the requirements, as the SFC has a two-tier restriction based on the trading platform's country (region) of operation.

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

2) The overseas platform's country of operation must be considered "reputable," according to either Hong Kong's definition of "reputable."

The overseas platform must be located in a internationally recognized, well-regulated country or region, with specific requirements including:

• Must be a member country of the Financial Action Task Force (FATF) or a similar organization;

• Have regulatory policies that broadly align with FATF's anti-money laundering regulations and the International Organization of Securities Commissions' (IOSCO) market policy recommendations regarding crypto assets.

First and foremost, the country where the overseas platform is located must be a country or region 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 checked at https://www.fatf-gafi.org/en/countries.html.)

Meeting the hard criteria is not enough; soft power must also be in place: it must have a regulatory policy for exchanges that complies with international standards. For trading platforms already established in regions with robust regulations like Japan, this requirement is easily met because they operate under strict anti-money laundering and market regulation frameworks and have similar licensing requirements. However, in countries like India, Turkey, Mexico, which lack corresponding regulatory policies, even if a VATP establishes a trading platform there and operates within the rules (as there are no rules to violate), they certainly do not meet the liquidity connection requirements and cannot participate in Hong Kong's market.

Legal Basis:

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

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

(b) Have effective regulation broadly consistent with the FATF’s recommendations and the International Organization of Securities Commissions' 'Policy Recommendations for Crypto and Digital Asset Markets' on market manipulation and customer asset protection."

2. Clear Risk Mitigation Measures for Trading and Settlement

Article 8 of the Circular clearly points out 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 custody system, various settlement risks may arise, such as settlement delays and failures.

This is a very real situation. In traditional securities trading, user assets are all held in the same clearinghouse (CCP, central counterparty), but in virtual asset exchanges, user assets are scattered across different custodians, each operating independently. It is akin to, originally, everyone kept their money in one bag, and transactions were settled directly from that bag; now, one needs to withdraw money from someone else's bag. How to avoid coming up empty, withdrawing too slowly, or withdrawing the wrong amount adds a certain level of risk to the transaction.

Of course, this is a rather extreme example. The custody arrangements of most reputable licensed exchanges are professionally qualified and secure. However, in order to enhance cross-border liquidity sharing resilience, Hong Kong has established the following requirements:

• Uniform rules to ensure fair, orderly, and traceable trading

Article 9 of the Circular stipulates that the shared order book shall establish a comprehensive set of rules, clarifying the procedures and operations for all platform participants to aggregate the use of the shared order book throughout the trading process. Moreover, these rules must be binding and enforceable on all participants (including Hong Kong and overseas platforms, custodians, and users), including:

Pre-funding

How to submit orders

How to execute trades

How to settle

Liability Management

How to handle liability changes (if applicable)

Roles, Rights, Obligations, and Liabilities of Each Participant

• Mandatory Full Prepayment, Automatic Validation, Ensuring Asset Delivery

Article 10 of the Circular stipulates that the platform must establish an automated pre-trade verification mechanism to instantly and automatically verify whether a trade instruction satisfies: full prepayment, asset custody, and sufficient quantity.

• Establish a Delivery-Versus-Payment (DVP) Settlement Mechanism

DVP is a financial settlement mechanism widely used in most traditional securities markets. With DVP, settlement is only deemed completed when both asset delivery and payment occur simultaneously, ensuring that the moment the buyer receives the goods is the same moment the seller receives the payment. Otherwise, the settlement will not be executed, making it the most effective way to mitigate timing risk.

Simply put, in its implementation, both parties first prepare their items, which are then checked by the clearing system. Once both parties are confirmed to meet the conditions, the transfer is completed. This is a typical practice of centralized exchanges. Hong Kong aims to achieve the level of security in the virtual asset space akin to traditional securities clearinghouses, addressing the risk of "settlement failure."

• Ensure Daily Settlement and Intraday Settlement

Articles 14 and 15 of the Circular state that the Hong Kong platform must settle trades with overseas platforms at least once a day and conduct intraday settlements, establishing an "unsettled transaction cap" to ensure that cross-border unsettled trades do not snowball.

• Compensation Arrangement

The Circular sets out the platform's compensation arrangement, with the key point being that the risk of cross-border settlement must be borne by the trading platform. This means that the Hong Kong platform must independently assume all responsibility and cannot shift the risk to overseas platforms. For example, in the event of default by overseas users or settlement failure by overseas platforms, the Hong Kong platform must compensate customers.

Legal Basis:

Article 16 of the Circular specifies: "The platform operator providing a shared order book shall demonstrate robust financial capabilities to manage the shared order book and shall bear full responsibility for its customers for transactions executed through the shared order book, as if such transactions were executed on the platform operator's own order book."

Furthermore, the reserve fund must be independent of platform assets, held in a clearly identifiable trust, and must be segregated for a specific purpose, solely for customer compensation. Moreover, the size of the reserve fund must equal or exceed the outstanding transaction limit, meaning the more cross-border transactions the platform conducts, the larger the reserve fund must be.

Legal Basis:

Guideline Section 17: "The platform operator must establish a reserve fund in Hong Kong, to be held by the platform operator in trust and designated for client compensation to cover losses resulting from settlement failures. The size of the reserve fund should not be less than the outstanding transaction limit and should be adjusted for expected outstanding transaction risk."

Guideline Section 18: "Pursuant to Virtual Asset Trading Platform Guidelines paragraph 10.22, platform operators must have compensation arrangements to safeguard against potential loss of entrusted client virtual assets. Clients of the platform operator should have an equivalent level of protection regarding settlement assets to be delivered. Therefore, platform operators should purchase insurance 4 or establish compensation arrangements to safeguard against potential loss of settlement assets (e.g., losses due to theft, fraud, or misappropriation), in an amount not less than required by Virtual Asset Trading Platform Guidelines paragraph 10.22."

3. Technical Challenges Behind Regulation

From an industry perspective, the Hong Kong government undoubtedly aims to increase exchange platform liquidity but has also set a high threshold, reflecting Hong Kong's consistent style of "dancing with handcuffs," echoing the Securities and Futures Commission's principle of "taking small steps to run fast." Behind this, the distinctiveness of Hong Kong's political and financial status is of course paramount, but Crypto Salad believes that technical issues are also a potential driving factor for regulation.

In fact, when VATP achieves cross-border liquidity sharing, the biggest challenge is not actually meeting regulatory requirements or reaching the required amount of fund reserves, but rather technical problems. The Guideline simplistically uses terms like "joint management" and "connection" to describe the technical cooperation model between platforms, but it does not address the technical interoperability issues that platforms must face in terms of trading links, matching engines, settlement processes, and risk control modules. For professional technical teams, the real technical challenge is not about "whether we can connect" or "how to connect" to share the order book but rather "how to securely connect within a compliance framework, operate stably, and deliver accountably."

Additionally, from a compliance perspective, cross-border data protection standards are not consistent across countries/regions. Which data can be cross-border, shared, and who is responsible? Is there a more explicit definition of "associated platforms"? For example, assuming there is an undisclosed ownership relationship between OSL and Bybit, are they considered associated platforms that can share liquidity? Even entities within the same group overseas may have entirely different IT systems and risk control modules. Does this mean they do not meet the criteria for "associated platforms"? These are just some details that legal professionals are concerned about.

Cross-border liquidity sharing may seem like simply connecting two systems, but in reality, it is more akin to a large-scale merger and integration project. Merely allowing interoperability between affiliated platforms is not a permanent solution. The industry's core challenge lies in how to correctly handle every compliance detail in a fully open scenario.

4. Crypto Salad Review

This circular once again illustrates Hong Kong's regulatory stance: it's not about remaining closed but about opening up compliantly. Overseas platforms with weaker regulatory standards or insufficient compliance capabilities will find it challenging to join this system. International platforms wishing to access Hong Kong's shared ledger must enhance their monitoring systems.

From a practical perspective, is Hong Kong's pool attractive enough to compel overseas trading platforms to reshape a part of themselves to fit into this Hong Kong puzzle? Salad believes that there is influence, but it will only affect platforms already aiming to conduct large-scale globalized compliant operations. For those platforms that rely on regulatory loopholes to survive, entering the Hong Kong market at this time is not yet opportune.

This article is a contributed piece and does not represent the views of BlockBeats.