The Hong Kong Securities and Futures Commission issued two circulars in quick succession. What did they say, and what impact will they have?

Author: Zhang Feng

On November 3, 2025, the Hong Kong Securities and Futures Commission (SFC) issued two important circulars on the same day: the "Circular on Expanding Products and Services of Virtual Asset Trading Platforms" and the "Circular on Sharing Liquidity among Virtual Asset Trading Platforms." These two documents represent not only a significant evolution of Hong Kong's virtual asset regulatory system but also a strategic move for Hong Kong to seize a leading position in the global digital asset competition landscape and promote the steady development of the industry. This article will systematically interpret the core essence and far-reaching impact of these two circulars from the aspects of their content, background, policy comparison, business impact, and future outlook.

I. Overview of the Core Contents of the Two Circulars

《Product Expansion Circular》: Promoting Product Diversification and Expanding Business Boundaries. The 《Circular on Expanding Virtual Asset Trading Platform Products and Services》 mainly revolves around "product diversification," and its core content includes three aspects:

First, relaxing the regulations for including tokens.

For virtual assets (including stablecoins) offered 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 restriction and can be offered to retail investors. This move significantly lowers the listing threshold for emerging tokens, helping platforms respond quickly to market changes and introduce more innovative assets. However, other virtual assets offered to retail investors still require a 12-month track record, reflecting the regulatory balance between encouraging innovation and protecting investors. Secondly, platforms are explicitly permitted to distribute digital asset-related products and tokenized securities. Licensed platforms, subject to existing regulations, can distribute digital asset-related investment products, including tokenized securities, and can open trusts or client accounts for clients holding related assets. This means that platforms are no longer merely trading venues but can transform into comprehensive financial service providers, further enriching their business models. Third, platforms are allowed to provide custody services for digital assets not traded on their platforms. Platforms can use affiliated entities to custody digital assets not listed for trading for clients, but must comply with strict due diligence and risk control requirements. This provision expands the platform's revenue streams and provides users with more comprehensive asset management solutions. The "Circular on Shared Liquidity" focuses on "liquidity integration," aiming to create shared liquidity pools by allowing licensed platforms to integrate their listings with their overseas affiliates, enabling cross-platform trading and execution. The circular sets forth systematic regulatory requirements for the operation of shared liquidity: First, partners must be compliant overseas platforms, and their jurisdictions must have regulatory frameworks consistent with international standards; second, a cash-on-delivery settlement mechanism must be established, a reserve fund must be set up to address settlement risks, and real-time monitoring must be implemented; third, a unified market surveillance plan must be established to prevent cross-border market misconduct; fourth, the platform… The platform must assume full responsibility for all transactions and fully disclose relevant risks to its clients. These regulations encourage platforms to improve trading depth and efficiency through liquidity sharing, while also emphasizing the importance of risk isolation and investor protection. II. The Deeper Background of the Circular's Issuance Aligning with International Standards and Enhancing Institutional Competitiveness. In recent years, the global virtual asset regulatory system has been rapidly developing. International institutions such as the Financial Action Task Force (FATF) and the International Organization of Securities Commissions (IOSCO) have issued numerous standard recommendations, emphasizing regulatory consistency, investor protection, and risk control. Hong Kong's move is a positive response to international regulatory consensus, aiming to enhance the compatibility of its regulatory system with international standards and strengthen its international competitiveness. Especially against the backdrop of Singapore, Dubai, the EU, and other regions successively introducing regulatory frameworks for virtual assets, Hong Kong urgently needs to maintain its leading position at the institutional level to attract global capital and talent. Digital assets are a key track for Hong Kong to consolidate its position as an international financial center and develop its digital economy. The "ASPIRe Roadmap" released in February 2025 clearly proposes to promote the development of the digital asset ecosystem with "products" and "connectivity" as the two pillars. This circular is a concrete implementation of the roadmap at the policy level, reflecting Hong Kong's policy orientation of encouraging innovation and expanding market depth under the premise of controllable risks. Hong Kong hopes to leverage institutional advantages to build a "digital asset hub" and gain a first-mover advantage in areas such as asset tokenization, cross-border settlement, and digital securities. This will help to cope with homogeneous competition and enhance overall competitiveness. Currently, Hong Kong's virtual asset trading platforms face challenges such as product homogenization, fragmented liquidity, and increasing competitive pressure from international platforms. Expanding the product range and introducing a shared liquidity mechanism will help improve the comprehensive service capabilities and market efficiency of local platforms, narrowing the gap with mainstream global platforms. Especially in terms of trading depth, asset types, 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 "seeking progress while maintaining stability" regulatory approach. They are important steps in refining and systematizing Hong Kong's virtual asset regulatory system, aiming to enhance market vitality and investor confidence. In terms of regulatory approach, both emphasize compliance, requiring platforms to strengthen risk management, information disclosure, and investor protection while expanding their business. Differences: Dual-driven by product innovation and market infrastructure. The *Product Expansion Circular* focuses on "product innovation," expanding the platform's business boundaries and revenue sources by relaxing token access and allowing the distribution and custody of diversified assets; the *Shared Liquidity Circular* focuses on "market infrastructure," improving trading efficiency and optimizing price discovery through liquidity integration, thereby enhancing the global attractiveness of the Hong Kong market. In short, the former addresses the question of "what is tradable," while the latter addresses the question of "how to trade more efficiently." They complement each other, forming the dual engines driving 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 see 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 Shared Liquidity Circular allows platforms to access global liquidity, improving 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 afford these costs may face the risk of being eliminated or integrated. In the medium to long term, these two policies will drive market restructuring. Improved product and service capabilities will attract more institutional and retail investors, expanding the market size; liquidity consolidation will accelerate platform differentiation, with platforms possessing technological and risk control advantages standing out; Hong Kong is expected to become a hub for digital asset product innovation and cross-border transactions in Asia, enhancing its node value in the global digital finance network. The issuance of these two circulars marks a new stage in Hong Kong's virtual asset regulation, moving from "prudent access" to "precise development." The Securities and Futures Commission (SFC) not only aligns with international standards in its systems but also demonstrates foresight and systematic approach in its policy design. In the future, Hong Kong may continue to deepen its efforts in the following areas: - Gradually bringing more digital asset classes into the regulatory purview, such as RWA and DeFi protocols; - Promoting cross-border regulatory cooperation, establishing multilateral mutual recognition mechanisms, and improving the efficiency of international collaboration; - Exploring the application of central bank digital currencies in virtual asset transactions to improve settlement efficiency and security; - Strengthening technological regulatory capabilities and utilizing tools such as blockchain analytics and AI monitoring to enhance law enforcement effectiveness. The Hong Kong Securities and Futures Commission's (SFC) issuance of two letters is both a timely response to market development needs and a strategic move in planning for the future of digital finance. While ensuring market stability, Hong Kong is steadily moving towards building a globally competitive digital asset ecosystem through a dual-engine approach of "liberalizing products and connecting liquidity." For market participants, only by seizing policy opportunities and strengthening compliance can they navigate this wave of development successfully.