Circular on permitting virtual asset trading platform operators to accept affiliated market makers

On February 11, 2026, the Securities and Futures Commission ("SFC") issued a circular detailing its regulatory approach and expected standards for SFC-licensed virtual asset trading platform operators (Platform Operators) to permit an affiliated company to engage in market making activities on their virtual asset trading platforms ("VATPs").

The primary goal of the circular is to enhance liquidity on VATPs, which remains subdued due to the current stage of digital asset market development. By allowing affiliated market makers ("AFMMs"), the SFC aims to provide more consistent liquidity, aligning with the ASPIRe roadmap's objectives of deepening liquidity, reinforcing market resilience, and bolstering Hong Kong's position as a leading digital asset center.

Under the current VATP Guidelines, group companies of a Platform Operator are restricted from conducting proprietary trading in virtual assets through the Platform Operator, except with the SFC's case-by-case authorization. The circular highlights the necessity for effective conflict of interest controls when permitting AFMMs to engage in market making on a VATP to protect client interests.

Regulatory requirements for Platform Operators include ensuring that the AFMM operates independently from the Platform Operator, implementing robust conflict of interest policies and procedures, designating a Responsible Officer ("RO") or Manager-in-Charge ("MIC") to oversee conflicts of interest management, maintaining stringent data security measures and information barriers, prioritizing client orders over AFMM orders, identifying trades executed by the AFMM, and disclosing any preferential treatment to clients.

Before authorizing an AFMM to engage in market making activities, the Platform Operator must notify the SFC in writing and submit a report by an independent professional firm certifying compliance with the Terms and Conditions. The notification must be signed by the Platform Operator's Manager-in-Charge of Overall Management Oversight ("MIC OMO") and include declarations and undertakings regarding compliance and the suspension of AFMM activities in case of significant breaches.

The senior management of the Platform Operator, including the RO, MIC OMO, MIC of compliance, and the board of directors, are responsible for diligently implementing policies and procedures to manage conflicts of interest and ensure compliance with the Terms and Conditions.