During the Hong Kong Fintech Week, Securities and Futures Commission (SFC) CEO Julia Leung unveiled new rules for crypto exchanges, allowing them to support global order books with their overseas affiliates. Hong Kong is also permitting the exchanges to trade digital securities. It is relaxing some (but not all) of the requirements regarding tokens needing a one year track record before they can be listed.
Crypto exchanges in Hong Kong are regulated under Virtual Asset Trading Platform (VATP) rules. During an on stage discussion, Leung explained that Hong Kong first created a closed loop crypto system entirely under Hong Kong supervision to ensure maximum investor protection. However, she observed that in the foreign exchange markets, when an investor places an order it is shared in a global order book which can be matched globally. Hence, for cryptocurrencies, Hong Kong now supports crypto exchanges sharing the order with their global affiliates.
However, it still wants to safeguard against risks to local investors. So transactions must be prefunded at the overseas exchange and settled via delivery versus payment. Additionally, the locally licensed VATP has to set up a Hong Kong based compensation fund to compensate for settlement failures. Plus, the overseas affiliates will need to agree to joint surveillance in an attempt to guard against market manipulation. The venues participating in the shared order book are restricted to jurisdictions that are FATF members and those complying with IOSCO recommendations for digital assets.
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