Overview of Crypto trading

Based on the Securities and Futures Commissions (SFC) consultation paper, it proposes to allow all types of investors, including retail investors, to access trading services provided by licensed VA trading platform operators, provided that the platforms comply with a range of robust investor protection measures.

According to SFC (Consultation Paper)
last revised 20 February 2023

When the existing SFO regime was introduced in 2018, the virtual asset market was still relatively new. Given the novelty of the licensing framework, the SFC considered it more prudent to restrict SFO-licensed VA trading platforms to serving professional investors only, at least at the initial stage, despite the robust investor protection guardrails provided.

In this regard, the SFC notes the public’s diverse views on whether retail investors should be allowed access to the services of licensed VA trading platforms. Some consider that allowing such access may legitimise the trading of virtual assets, the majority of which do not have any intrinsic value and are prone to issues such as high volatility and market manipulation. Many others, however, take the view that denying retail access may in fact result in investor harm as it may push retail investors to trade on unregulated VA trading platforms overseas, which could easily be accessed online; if any of these unregulated VA trading platforms collapses, retail investors would have difficulty seeking any recourse. This has been the case in the recent collapse of many unregulated VA trading platforms, as investors could not withdraw their assets and suffered substantial losses.

The existing SFO regime has been in place for a few years and two VA trading platforms are licensed under the SFO at present. Over the years, the SFC introduced a number of virtual asset policies which gradually allowed retail investors to gain limited exposure to virtual assets. In January 2022, the SFC allowed for the first time retail investors to access a limited suite of regulated virtual asset-related derivative products traded on conventional exchanges. Subsequently, in October 2022, the SFC put in place a regime for the authorisation of virtual asset futures exchange-traded funds (VA futures ETFs), under which the SFC has authorised three VA futures ETFs to date. Retail investors thus have indirect access to virtual assets through regulated products in Hong Kong.

At the same time, the dynamics of the virtual asset market have changed significantly. More global financial institutions and service providers such as traditional custodians have entered the space and are establishing institutional-grade infrastructure for it. In Hong Kong, a number of licensed brokers and fund managers are also providing virtual asset-related services to investors under the SFC’s supervision. The entry of financial institutions is gradually shaping the virtual asset space through the introduction of policies and procedures, systems and controls comparable to those in mainstream finance.

In light of the above and having balanced the importance of offering investor protection for retail investors, the SFC proposes to allow all types of investors, including retail investors, to access trading services provided by licensed VA trading platform operators, provided that the platforms comply with a range of robust investor protection measures set out in paragraphs 28 to 52 below.