Hong Kong Securities and Futures Commission further relaxes virtual asset regulations: opens up guaranteed financing and perpetual contracts

The Hong Kong Securities and Futures Commission (SFC) announced today (11) the latest guidelines, allowing licensed brokers providing virtual asset trading services to expand their scope to “virtual asset collateralized financing,” enabling the use of virtual assets as collateral. At the same time, a “High-Level Framework” has been established to permit licensed virtual asset trading platforms to offer perpetual contracts to professional investors. Opening Virtual Asset Collateralized Financing to Enhance Market Participation The SFC stated that these measures are part of the latest developments under the “ASPIRe Roadmap” to expand the diversity of digital asset products and services. In the future, licensed virtual asset brokers can provide virtual asset financing services to securities margin clients, provided they have sufficient collateral and comprehensive investor protection mechanisms. SFC Chief Executive Officer Julia Leung earlier mentioned that, considering the high volatility of virtual assets, the SFC has adopted a cautious initial approach. Initially, only Bitcoin and Ethereum, the largest and most liquid assets, will be accepted as collateral. The SFC hopes that through this initiative, margin clients with sound credit and collateral will be encouraged to participate more actively in virtual asset trading, thereby increasing market liquidity in Hong Kong within a risk-controlled framework. Inclusion of Perpetual Contracts in Regulations for Professional Investors Only More notably, the SFC has for the first time developed a “High-Level Framework” for licensed virtual asset trading platforms, guiding operators to develop leveraged products limited to professional investors, including the highly watched “perpetual contracts.” Perpetual contracts are derivative products without an expiration date, maintaining a link to spot prices through a funding rate mechanism, and are among the most traded instruments in global cryptocurrency markets. Hong Kong has historically taken a cautious stance toward these products, but now, within the scope of professional investors, the gradual opening indicates that regulators are beginning to align with international market practices under a risk-managed approach. The SFC pointed out that the framework will focus on three main principles: highly transparent product design, clear and comprehensive information disclosure, and robust operational monitoring measures. The SFC stated that opening perpetual contract products aims to assist investors in implementing risk management strategies and to enhance liquidity in the spot markets of related assets. Affiliated Companies Can Act as Market Makers to Introduce New Liquidity Sources To further invigorate the virtual asset trading ecosystem, the SFC also permits affiliated companies of licensed virtual asset trading platforms to act as market makers, provided strict conflict-of-interest prevention measures are in place. This arrangement means that platforms can introduce more liquidity channels through a compliant framework, helping to narrow bid-ask spreads and improve market depth. Dr. Yip Chi-hang, Executive Director of the SFC’s Intermediaries Division, stated that following the ASPIRe Roadmap’s phased development strategy is crucial for the scalable growth of Hong Kong’s digital asset market. He emphasized that these targeted measures are not only aimed at enhancing market liquidity but also demonstrate the SFC’s firm commitment to developing Hong Kong’s digital asset market in a sustainable and collaborative manner.