Author: Zhang Feng

On November 3, 2025, the Hong Kong Securities and Futures Commission (referred to as "SFC") simultaneously released two important circulars: "Circular on Expanding Products and Services of Virtual Asset Trading Platforms" and "Circular on Sharing Liquidity of Virtual Asset Trading Platforms." These two documents not only represent a significant evolution in Hong Kong's virtual asset regulatory framework but also serve as strategic measures for Hong Kong to seize a regulatory high ground in the global digital asset competitive landscape and promote the robust development of the industry. This article will systematically interpret the core significance and far-reaching impact of these two circulars from the perspectives of content, background, policy comparison, business impact, and future outlook.

I. Overview of the Core Content of the Two Circulars

"Product Expansion Circular": Promoting Product Diversification and Expanding Business Boundaries. The "Circular on Expanding Products and Services of Virtual Asset Trading Platforms" primarily focuses on "product diversification," with three core aspects:

First, relaxing the token inclusion requirements. For virtual assets (including stablecoins) sold to professional investors, the requirement for a 12-month track record has been removed. Stablecoins issued by licensed stablecoin issuers are also exempt from this requirement and can be sold to retail investors. This measure significantly lowers the listing threshold for emerging tokens, helping platforms quickly respond to market changes and introduce more innovative assets. However, other virtual assets aimed at retail investors still need to meet the 12-month track record requirement, reflecting a balance between encouraging innovation and protecting investors.

Second, clearly allowing platforms to distribute digital asset-related products and tokenized securities. Licensed platforms can distribute digital asset-related investment products, including tokenized securities, provided they comply with existing regulations, and can open trust or client accounts for customers holding related assets. This means that platforms are no longer just trading venues but can transform into comprehensive financial service providers, further enriching their business models.

Third, allowing platforms to provide custody services for digital assets not traded on their platforms. Platforms can provide custody for digital assets that are not listed for trading through affiliated entities, but must adhere to strict due diligence and risk management requirements. This regulation expands the revenue sources for platforms and offers users a more comprehensive asset management solution.

"Liquidity Sharing Circular": Building Cross-Domain Liquidity Pools to Enhance Market Efficiency. The "Circular on Sharing Liquidity of Virtual Asset Trading Platforms" focuses on "liquidity integration," aiming to allow licensed platforms to integrate order books with their overseas affiliated platforms to form shared liquidity pools, enabling cross-platform trading and execution. This circular proposes systematic regulatory requirements for the operation of shared liquidity:

First, partners must be compliant overseas platforms, and the jurisdiction must have a regulatory framework that meets international standards;

Second, a cash settlement mechanism must be established, with a reserve fund to address settlement risks and implement real-time monitoring;

Third, a unified market surveillance plan must be established to prevent misconduct in cross-domain markets;

Fourth, platforms must assume full trading responsibility and fully disclose related risks to customers.

These regulations encourage platforms to enhance trading depth and efficiency through liquidity sharing while emphasizing the importance of risk isolation and investor protection.

II. Deep Background of the Circulars' Release

Aligning with International Standards to Enhance Institutional Competitiveness. In recent years, the global regulatory framework for virtual assets has been rapidly constructed. International organizations such as the Financial Action Task Force and the International Organization of Securities Commissions have introduced several standard recommendations, emphasizing regulatory consistency, investor protection, and risk prevention. Hong Kong's move is a proactive response to international regulatory consensus, aiming to enhance the compatibility of its regulatory framework with international standards and strengthen its international competitiveness. Especially in the context of Singapore, Dubai, and the European Union successively introducing virtual asset regulatory frameworks, Hong Kong urgently needs to maintain a leading position at the institutional level to attract global capital and talent.

Consolidating Financial Center Status with Digital Assets. Virtual assets are a key track for Hong Kong to consolidate its status as an international financial center and develop the digital economy. The "ASPIRe Roadmap" released in February 2025 clearly proposes "products" and "connectivity" as the two pillars to promote the development of the digital asset ecosystem. This circular is a concrete implementation of that roadmap at the policy level, reflecting Hong Kong's policy orientation to encourage innovation and expand market depth under the premise of controllable risks. Hong Kong hopes to leverage institutional dividends to build a "digital asset hub," gaining a first-mover advantage in asset tokenization, cross-border settlement, and digital securities.

Addressing Homogeneous Competition to Enhance Comprehensive Competitiveness. Currently, Hong Kong's virtual asset trading platforms face issues such as product homogeneity, fragmented liquidity, and increasing competitive pressure from international platforms. Relaxing product scope and introducing shared liquidity mechanisms will help enhance the comprehensive service capabilities and market efficiency of local platforms, narrowing the gap with global mainstream platforms. Especially in terms of trading depth, asset variety, and user experience, Hong Kong platforms urgently need to achieve leapfrog development through institutional innovation.

III. Comparison of the Two Circulars

Similarities: Seeking Progress While Maintaining Stability, Balancing Development and Risk. Both circulars aim to "promote market development and prevent financial risks," reflecting the SFC's regulatory approach of "seeking progress while maintaining stability." They are both important steps in the refinement and systematization of Hong Kong's virtual asset regulatory framework, aiming to enhance market vitality and investor confidence. In terms of regulatory methods, both emphasize compliance as a baseline, requiring platforms to strengthen risk management, information disclosure, and investor protection while expanding their business.

Differences: Dual Drivers of Product Innovation and Market Infrastructure. The "Product Expansion Circular" emphasizes "product innovation," expanding the business boundaries and revenue sources of platforms by relaxing token access, allowing distribution, and diversifying custody of assets; the "Liquidity Sharing Circular" focuses on "market infrastructure," enhancing trading efficiency and optimizing price discovery through liquidity integration, thereby increasing the global attractiveness of the Hong Kong market.

In short, the former addresses the question of "what can be traded," while the latter addresses "how to trade more efficiently." The two complement each other, together forming a dual engine for the development of Hong Kong's virtual asset market.

IV. Impact on Platform Operations

Short-term Opportunities and Challenges Coexist. In the short term, licensed platforms will encounter opportunities for business expansion. The "Product Expansion Circular" enables platforms to quickly launch emerging tokens and stablecoins, distribute tokenized securities and digital asset products, and explore the custody service market; the "Liquidity Sharing Circular" allows platforms to access global liquidity, enhancing trading depth and customer experience.

However, platforms also face the challenge of rising compliance costs. They need to strengthen due diligence, risk management, system construction, and information disclosure, especially in cross-border settlement, market surveillance, and customer asset protection, requiring corresponding resources to meet regulatory requirements. Small and medium-sized platforms that cannot bear these costs may face the risk of being eliminated or integrated.

Medium to Long-term Restructuring of Market Structure. In the medium to long term, these two policies will drive the restructuring of the market. The enhancement of product and service capabilities will attract more institutional and retail investors, expanding market size; liquidity integration will accelerate differentiation among platforms, with those possessing technological and risk control advantages standing out; Hong Kong is expected to become a hub for digital asset product innovation and cross-border trading in Asia, enhancing its node value in the global digital financial network.

V. Outlook for the Development and Regulation of Digital Assets in Hong Kong

The release of these two circulars marks a new stage in Hong Kong's virtual asset regulation, transitioning from "prudent access" to "precise development." The SFC not only aligns its framework with international standards but also demonstrates foresight and systematic thinking in policy design.

In the future, Hong Kong may continue to deepen in the following areas:

• Gradually incorporating more categories of digital assets into the regulatory framework, such as RWA, DeFi protocols, etc.;
• Promoting cross-border regulatory cooperation, establishing multilateral mutual recognition mechanisms, and enhancing international coordination efficiency;
• Exploring the application of central bank digital currencies in virtual asset trading to improve settlement efficiency and security;
• Strengthening technological regulatory capabilities, utilizing tools such as blockchain analysis and AI monitoring to enhance enforcement effectiveness.

The SFC's simultaneous release of two circulars is not only a timely response to market development needs but also a strategic move to lay out the future of digital finance. Under the premise of ensuring market stability, through the dual drive of "opening up products and connecting liquidity," Hong Kong is steadily advancing towards building a competitively international digital asset ecosystem. For market participants, only by seizing policy dividends and solidifying compliance foundations can they navigate this wave steadily and sustainably.

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