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"

Authors: Sha Jun, Guo Fangxin

Riding on the momentum of FinTech Week, the Hong Kong Securities and Futures Commission (SFC) has made two startling announcements that have caused quite a stir. As we all know, the biggest dilemma facing virtual asset trading platforms in Hong Kong today is the lack of profitability. The regulatory walls are built too high and too solidly; while they effectively block "dirty money," they also prevent the market from functioning, rendering it almost stagnant.

The SFC clearly recognizes this issue. As stated by Yip Chi-hang, Executive Director of the SFC's Intermediaries Division, digital asset regulation should adhere to the principle of "small steps, quick runs," allowing for dynamic regulation through small-scale trial and error. This phrase is very well put, and the two "circulars" aptly embody its essence.

Today, Crypto Salad will delve into this from a professional legal perspective: what new changes are there in regulation? How will it affect the next steps for exchanges?

Regarding the "Circular on Sharing Liquidity Among Virtual Asset Trading Platforms"

First Time Allowing Virtual Asset Trading Platforms to Share Order Books with Their Overseas Affiliates

First, a shared order book refers to a unified order book managed and shared by two or more virtual asset trading platforms. It can merge trading instructions from different platforms 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 internally, 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 exchanges and their "global affiliates" in virtual asset trading platforms, meaning that HashKey Exchange can only access liquidity from other regional trading platforms that belong to HashKey Global within the same 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 has two layers of restrictions regarding the countries (regions) where the exchanges are 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 deemed "reliable," as defined by Hong Kong.

The overseas platform must be located in a country or region that is internationally recognized and well-regulated, 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 official website, which can be checked at https://www.fatf-gafi.org/en/countries.html.)

Meeting the hard 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 areas 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 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 accessing liquidity, thus unable to join the Hong Kong market.

Legal Basis:

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

(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."

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's akin to everyone putting their money in one bag for transactions, but now needing to take money from someone else's bag, raising risks of emptying it, delays, or incorrect amounts.

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 stipulates that a comprehensive set of rules must be created for the shared order book, clearly outlining the procedures and operations for all platform participants 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 requirements, how to issue instructions, how to execute trades, how to settle, breach management, how to handle changes in responsibility (if applicable), and the roles, rights, obligations, and responsibilities of each participant.

• Mandatory full pre-payment, 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 pre-payment, 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 completed 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 execute, which is the most effective way to avoid timing risks.

  Its implementation, simply put, 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 akin to that of traditional securities clearinghouses, 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 platform's compensation arrangements, emphasizing 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 risks 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, clearly held in trust, and must be used exclusively for compensating clients. Furthermore, the scale of the reserve funds must equal or exceed the unsettled transaction limit, meaning that 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 expected unsettled transaction risks."

Article 18 of the Circular states: "According to paragraph 10.22 of the Guidelines for Virtual Asset Trading Platforms, the platform operator must have compensation arrangements to protect against potential losses of client virtual assets under custody. For settlement assets to be delivered, the platform operator's clients 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 by paragraph 10.22 of the Guidelines for Virtual Asset Trading Platforms."

Technical Challenges Behind Regulation

From an industry perspective, the Hong Kong government undoubtedly wants to increase liquidity for exchanges, but it has also set high thresholds, reflecting Hong Kong's consistent style of "dancing with shackles," resonating with the SFC's principle of "small steps, quick runs." The unique political and financial status of Hong Kong is certainly a primary factor, but Crypto Salad believes that technical issues are also a potential driving force behind 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 uses generic terms like "joint management" and "connection" to describe the technical cooperation model between platforms, but does not address the technical interoperability issues that platforms must face regarding 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 book, but "how to connect safely, operate stably, and deliver accountably within a compliance framework."

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 instance, if OSL and Bybit have an implicit shareholding relationship, 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 qualify as "affiliated platforms"? These are just some of the details that legal professionals are concerned about.

Cross-border liquidity sharing may seem like merely connecting two systems, but it is essentially a deep integration project akin to a large-scale merger. Allowing only affiliated platforms to connect is not a permanent solution; the core challenge for the industry is how to correctly complete every compliance detail in a fully open environment.

Crypto Salad's Commentary

This Circular reaffirms 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 sufficient appeal and can compel overseas trading platforms to reshape part of themselves to fit into this puzzle is a question. Crypto Salad believes there is influence, but it will only affect platforms that already aim to engage in large-scale global compliance operations. For those retail platforms that rely on regulatory loopholes for survival, now is not the right time to enter the Hong Kong market.

Special Statement: This article is an original work by the Crypto Salad team, representing the personal views of the author and does not constitute legal advice on specific matters. For reprints, please contact us privately for authorization: shajunlvshi.