Virtual currency trading for individual investors
The Hong Kong Securities and Futures Commission (SFC) has released a consultation document on the 20th regarding the requirements for granting a business license to a crypto asset (virtual currency) exchange.
New regulatory rules will be presented and opinions will be solicited until the end of March 2023. After that, on June 1 of the same year, the new rules will be enforced, introducing a licensing system to all centralized exchanges, etc., and obliging them to register with the SFC. The new rules include a proposal to allow retail investors to trade cryptocurrencies.
Hong Kong, which aims to become a center for cryptocurrencies, has recently accelerated regulatory development. In January of this year, it was reported in advance that rules were being developed to allow individual investors to trade virtual currencies. Hong Kong is currently piloting cryptocurrency trading, only allowing professional investors with bank assets of around ¥130 million (HK$8 million) to trade.
connection: Hong Kong authorities to allow individual investors to trade virtual currencies
In its advisory document, the SFC said it would specifically seek input on “should licensed cryptocurrency exchanges be authorized to offer services to retail investors?” It also seeks views on “if it is allowed, what rules should be established in addition to investor protection?”
Specifically, it includes what kind of investors are suitable for virtual currency trading and what stocks should be traded.
In Hong Kong, while there are voices of concern about the size of price fluctuations and the risk of price manipulation, it is said that banning individual investors from trading will result in them using overseas exchanges that do not have regulatory approval. I have an opinion. If an unlicensed exchange goes bankrupt, investors may not be able to withdraw their assets or suffer large losses, and as a result, trading bans do not protect investors.
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Concrete plan of rule
Regarding the aptitude of cryptocurrency investors mentioned above, SFC claims that exchanges will thoroughly verify the identity of investors, as with existing rules. Exchanges will be asked to confirm investors’ economic conditions, investment experience, investment objectives, etc. In addition, he said that it is necessary to make sure that he has sufficient knowledge about virtual currency, such as risks.
He explained that due diligence (investigation) will be imposed on each cryptocurrency traded on the exchange. Business operators will be requested to continuously investigate whether they meet the conditions for listing, not just at the beginning.
When Hong Kong’s virtual currency exchanges list stocks, the factors that must be considered are mainly the following points.
- Background of the operation and development team
- Regulatory status in other countries/regions
- Supply and demand, maturity and liquidity. Includes market capitalization and average daily trading volume.
- Technical features, including security, etc.
- Are accurate and non-misleading materials published?
- Is ownership and management decentralized?
- legal risk
- Is it useful
- Will it be used for crime etc.?
This time, the SFC said, “If you apply for a license, including existing exchanges, you should start checking whether you meet the conditions announced this time. I want you to start preparing to end it.”
For now, Huobi has already announced that it will apply for a license in Hong Kong.
Big news for crypto today: @HuobiGlobal has announced that it’s applying for a crypto trading license in Hong Kong
! This is a major step for the major cryptocurrency exchange and a sign of its continued commitment to operating in a compliant and regulated manner.
— HE Justin Sun 孙宇晨 (@justinsuntron) February 20, 2023
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