Hong Kong opens a Compliance exchange link to global Liquidity, see the four major regulatory conditions of the SFC at once.

The Hong Kong Securities and Futures Commission (SFC) issued a circular on March 11, allowing local licensed virtual asset trading platforms for the first time to share order books with overseas subsidiaries or affiliated platforms under the same group. This means that open orders from Hong Kong and overseas can be aggregated into the same liquidity pool for matching. It signifies that Hong Kong investors will be able to directly match trades with overseas markets in the future, enjoying deeper liquidity and a trading environment closer to international prices.

The SFC aims to align Hong Kong's virtual asset market with the global market.

The SFC pointed out that virtual asset trading itself has no borders, and liquidity is dispersed across exchanges around the world. This new policy is part of the “ASPIRe roadmap” and one of its three pillars, “connect” (Access), aiming to connect the liquidity between Hong Kong and overseas markets, promoting Hong Kong to become an international virtual asset hub.

According to the circular, this opening is limited to the integration of platforms within the “same corporate group,” meaning that licensed platforms in Hong Kong can share order books with their overseas affiliates. The SFC expects to:

Improve transaction efficiency and narrow the price gap between different markets.

Make the prices in the Hong Kong market closer to the global market.

Attract more overseas liquidity to flow back locally.

The SFC stated that the current trading on Hong Kong platforms adopts a prepayment system and immediate settlement, with controllable risks. However, after cross-border matching, new operational and regulatory challenges will arise due to the settlement assets and counterparty being located in different jurisdictions.

( Note: The ASPIRe roadmap is the Hong Kong version of the virtual asset development blueprint, with three main pillars in the blueprint being connection, regulation, and innovation. )

SFC Regulatory Guidelines: Shared Order Books Must Meet Four Core Conditions

Overseas platforms must comply with regulations and obtain licenses.

The shared order book can only cooperate with “affiliated platforms” that hold licenses in the local overseas jurisdiction, and that jurisdiction:

Must be a member of the Financial Action Task Force (FATF) or similar organizations.

and has a regulatory system that is “generally in line” with the policy standards for the crypto market set by the FATF and the International Organization of Securities Commissions (IOSCO).

Risk Control in Trading and Settlement

If a Hong Kong client's order matches with an overseas client, and the settlement assets ( fiat or cryptocurrency ) are held in different entities, there may be a risk of delay or failure. The SFC requires:

All transactions must be “fully prepaid.”

Automated verification mechanisms are used to confirm that funds are in place.

Must comply with the “silver coin two ends” ( DVP ) principle, synchronously settling assets and currencies.

Settle at least once a day, and perform intraday settlements as needed.

Establish an “unsettled transaction limit” and use a real-time monitoring system to track risks.

Compensation and insurance arrangements

The SFC requires that the platform must take full responsibility for all transactions conducted through a shared order book, just as if they were completed on their own platform. At the same time, a “reserve fund” must be established in Hong Kong, specifically for customer compensation purposes. The amount of the fund must be at least equal to the “maximum limit of unsettled transactions.” Additionally, insurance or compensation mechanisms must be in place to prevent losses due to fraud, theft, or misappropriation.

( Note: The upper limit of unsettled transactions requires the platform to first prepare a security fund as insurance, with an amount at least equal to the total amount of unsettled transactions, to ensure that regardless of what happens, the client's assets can be compensated. )

Preventing market misconduct

The SFC stated that since the start of cross-border trading, the risks of market manipulation and money laundering have gradually increased. Therefore, local compliance platforms in Hong Kong need to establish a “Unified Market Supervision Program” with overseas associated platforms, which includes appointing dedicated supervisors responsible for overall cross-border trading supervision, participating in the setup of monitoring systems and handling abnormal alerts, and regularly checking whether the monitoring mechanism is effective.

Moreover, it is necessary to provide complete trading data, the identity of the order placer, and monitoring reports immediately upon SFC's request.

SFC announces operational guidelines: fair matching, daily settlement

The SFC stated that the shared order book must operate according to a complete set of operational rules, clearly specifying:

The rights, obligations, and responsibilities of all participants.

Order placement, matching, settlement, and accountability management processes.

All transactions require prepayment of funds and are held by a designated custodian.

All participants should have the right to equally access order information.

In addition, the platform must ensure that it settles with overseas affiliated platforms at least once a day, and the customer assets after settlement must be entrusted to a Hong Kong affiliated entity for custody. If the trading volume fluctuates too much, the intraday settlement mechanism must be activated to reduce risk.

SFC disclosure regulations: Investors must be clearly informed and voluntarily participate.

Before providing shared order book services, the platform must fully disclose:

Responsibilities and settlement processes.

Potential conflict of interest.

The risk of settlement delays or failures.

Compensation and insurance coverage.

Investor's right of recourse.

For retail customers, the platform must also clearly explain the additional risks that may be faced in cross-border transactions, such as lower regulatory protections in overseas jurisdictions. Moreover, this service can only be provided after the investor has explicitly agreed to participate.

The SFC finally stated that all licensed platform operators planning to operate shared order books must obtain written approval from the SFC in advance. The licenses granted to approved platforms will come with specific conditions. The SFC pointed out that the policy will be implemented progressively, and they will continue to monitor market operations and risk conditions.

( The Hong Kong Securities and Futures Commission warns of the bubble risk of crypto reserve companies and plans to formulate regulations on the holding behavior of listed companies )

This article discusses how Hong Kong's open and compliant exchange connects global Liquidity, with a look at the four major regulatory conditions set by the SFC, first appearing in Chain News ABMedia.