Navigating Hong Kong’s Virtual Asset Regulations
As LeverFi (杠杆金融) continues to expand its innovative decentralized financial services, we are thrilled to bring our expertise and vision to Hong Kong and China.
Following the release of the Consultation Conclusions by Hong Kong’s Securities and Futures Commission, we provide below a concise summary of the recent regulatory developments in Hong Kong’s virtual asset market to help our new users understand the landscape, and LeverFi’s scope of participation as we scale up our presence in this exciting digital assets growth hub.
- Token Track Record
To address due diligence challenges and reduce fraud risks, it is expected that non-security tokens available to retail trading have a minimum 12-month track record. This requirement aims to provide a layer of protection and mitigate the impact of marketing efforts during initial offerings.
- Retail Access: Large-Cap Indices
As a measure to minimize market manipulation risks, tokens accessible to retail users should be large-cap virtual assets included in at least two acceptable indices. This criterion ensures a reduced risk of manipulation not only on the platform but also across the broader virtual asset market.
- No Security Tokens for Retail
Hong Kong’s regulatory framework restricts retail traders from engaging in the trading of security tokens. This limitation is due to the legal monopoly held by the Hong Kong Exchanges and Clearing Limited (HKEX) on equity trading. Security tokens are reserved for professional and accredited investors within HKEX’s purview.
- Stablecoin Trading Restrictions
To safeguard market stability and investor interests, retail trading of stablecoins is currently not allowed in Hong Kong. The policy aims to ensure proper reserve management, price stability, and investor redemption rights, with comprehensive regulation required for stablecoins before retail trading is permitted.
- Limitations on Additional Virtual Asset Services
Licensed virtual assets trading platforms in Hong Kong are prohibited from offering services such as earning, deposit-taking, lending, and borrowing. These restrictions aim to address potential conflicts of interest and ensure the primary role of licensed platforms as intermediaries for order matching. By refraining from engaging in these activities, licensed VA trading platforms can maintain a focus on providing a secure and transparent environment for trading virtual assets.
- Platform Giveaways: Advertising Restrictions
To ensure fair and unbiased trading practices, platform operators in Hong Kong are prohibited from offering gifts tied to specific virtual assets. This restriction eliminates promotional activities that could compromise the integrity of the virtual asset market.
- Proprietary Trading and Affiliates
In order to maintain liquidity and expand trading opportunities, the Securities and Futures Commission (SFC) allows third-party market makers to engage in market-making activities. The revised requirements also permit trading by affiliates of licensed virtual asset trading platforms, providing more options while ensuring oversight and risk management measures are in place.
At LeverFi, we are dedicated to empowering our users and supporting their journey in the world of decentralized finance.
Applications to the SFC start on 1 June 2023, at which time LeverFi will also commence our application process to obtain regulatory approval and licenses that allow us to operate and service retail and institutional users in the Greater China region.
As we forge ahead with our expansion plans in Hong Kong, we invite you to stay connected with LeverFi and follow our blog for the latest updates and insights as we power our way into one of the world’s largest user markets for digital assets.
LeverFi is the first on-chain, cross-margin platform on Ethereum, offering DeFi users a best-in-class leveraged trading platform.
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