SFC Rolls Out Strategic Measures to Enhance Digital Asset Market Development in Hong Kong

Calvin James

The Securities and Futures Commission (SFC) in Hong Kong has introduced key regulatory changes to enhance the city’s digital asset market. These changes focus on expanding the range of services offered, particularly in margin financing and the creation of perpetual contracts. The initiative also enhances liquidity by allowing affiliated market makers to operate on licensed platforms.

Margin Financing and Perpetual Contracts to Drive Market Liquidity

The SFC has authorized licensed virtual asset brokers to extend margin financing services to securities margin clients. This move is expected to increase investor participation by allowing those with strong credit profiles and collateral to trade more actively in the virtual asset market.

However, brokers will be required to maintain sufficient collateral and implement robust investor protection measures to ensure services are offered in a secure manner. This regulatory update will help enhance liquidity in the Hong Kong digital asset market while managing the associated risks.

In addition, the SFC has introduced a framework that permits licensed virtual asset trading platforms (VATPs) to offer perpetual contracts to professional investors. These leveraged products are designed to help investors manage their risks more effectively while contributing to deeper liquidity in the spot market.

The SFC has outlined requirements for transparent product designs, clear disclosures, and robust operational controls. This move marks the first time that the SFC has issued specific guidelines for leveraged products such as perpetual contracts, aimed exclusively at professional investors.

Affiliated Market Makers to Enhance Liquidity and Price Discovery

Another important development is the SFC’s decision to allow affiliated market makers to operate on licensed virtual asset platforms. This will provide an additional source of liquidity, particularly in volatile trading periods.

The market makers, however, must adhere to strict safeguards to prevent conflicts of interest, including operational separation from the platform’s core functions. By introducing this measure, the SFC aims to reduce bid-ask spreads and improve price discovery in the digital asset market. The SFC has made it clear that it will continue to closely monitor the implementation of these initiatives.

By engaging with stakeholders and ensuring these regulatory measures are properly enforced, the SFC intends to maintain a competitive and secure market environment in Hong Kong. These changes reflect Hong Kong’s commitment to becoming a global hub for digital asset trading while ensuring investor protection and market stability.

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