Hong Kong Securities and Futures Commission lifts ban on virtual asset margin lending, establishes a high-level framework for perpetual contract issuance, and limits qualified virtual asset collateral to only Bitcoin and Ethereum.

On February 11, the Hong Kong Securities and Futures Commission (SFC) issued a package of new regulations allowing licensed virtual asset brokers to provide virtual asset financing services to securities margin clients, provided they have sufficient collateral and establish robust investor protections.

At the same time, the SFC for the first time established a high-level framework for licensed virtual asset trading platforms to guide the development of perpetual contracts that are only accessible to professional investors and are leveraged products.

This marks another regulatory step in the digital asset sector following the SFC’s release of the “ASPIRe” roadmap for virtual asset market regulation in February 2025.

During the Consensus Hong Kong 2026 conference held on the same day, Ye Zhiheng, Executive Director of the SFC’s Intermediaries Division, stated that the development of digital assets in Hong Kong has entered a critical phase. “This year, the SFC’s focus is on enhancing market liquidity, strategically expanding market participation, and encouraging responsible product innovation to increase market depth, improve price discovery mechanisms, and boost investor confidence.”

Anchoring the Securities Framework, Collateral Limited to Bitcoin and Ether

According to the circular issued by the SFC, the authority officially repealed the previous ban on licensed corporations or registered institutions providing any financial accommodation to clients for purchasing virtual assets. Instead, it will permit virtual asset brokers engaged in securities margin financing to offer credit to margin clients for virtual asset trading, provided they hold sufficient securities collateral and certain limited virtual assets used to mitigate credit risk.

However, this approval includes strict firewall measures. The new rules specify that only securities margin financing clients of virtual asset brokers are eligible for virtual asset financing. Additionally, virtual asset brokers should not increase credit limits for clients solely because they can provide virtual asset financing. When assessing the financial capacity of margin clients, brokers should fully consider the price volatility of illegal currency assets included in the client’s net asset value.

Regarding collateral, the SFC adopts a cautious stance. Qualified virtual asset collateral is limited to Bitcoin (BTC) and Ether (ETH), with a prudential deduction rate of no less than 60%. To accommodate developments in the virtual asset market and financing, the SFC may, after prior notice to brokers, adjust these deduction rates.

The SFC specifically warns that virtual assets have performed poorly under significant systemic shocks, with even the most active assets experiencing intraday and cross-day sharp declines. With the increase of leverage tools, downside risks may intensify.

Therefore, the SFC explicitly requires virtual asset brokers to continuously identify and monitor the risks associated with fragile virtual assets in their margin loan portfolios, clearly document their methods in margin lending policies, maintain operational capacity to monitor collateral fluctuations in real-time, and take timely actions. Besides enforcing collateral upon client default, virtual assets must not be re-pledged, reused, or encumbered with ownership interests.

First-Time Establishment of a High-Level Framework Allowing Platform-Related Market Makers

In the derivatives space, the SFC has for the first time issued the “High-Level Framework for Virtual Asset Trading Platforms Offering Virtual Asset Perpetual Contracts.” This framework specifies that perpetual contracts can only be sold to professional investors, and the reference assets must be virtual assets already approved for retail spot trading or indices that meet the IOSCO Financial Benchmarks Principles.

Furthermore, the framework strictly prohibits platforms from providing any form of credit for margin, and margin must be paid in fiat currency, Hong Kong dollar-backed stablecoins, or tokenized deposits.

Notably, the circular states that platform operators are responsible for settlement of all transactions on their platform, regardless of whether they are counterparties to those transactions, and must establish clear loss-sharing mechanisms.

Another significant measure introduced by the SFC is the approval for related companies of licensed virtual asset trading platforms to act as market makers on their platforms for the first time. Ye Zhiheng pointed out at the conference that this move will help narrow bid-ask spreads, improve fairness and transparency, ensure client instructions are prioritized, and effectively identify market-making activities.

Ye also revealed that to support innovation while providing clear regulatory guidance, the SFC will launch a digital asset accelerator. This channel will facilitate systematic communication between the SFC and industry innovators. “The accelerator will appoint designated agents to provide clear guidance to market builders, support innovation, and help regulators and industry stakeholders efficiently allocate resources, explore new market maker models, financing mechanisms, and leverage products.”

In conclusion, he stated, “Liquidity is not endogenous but must be cultivated in an open market environment with sound governance and targeted regulatory design. Through targeted market participation reforms, product diversification, and precise support for innovation, Hong Kong is well-positioned to become a leading global digital asset hub, fostering vibrant liquidity on a foundation of integrity, resilience, and international cooperation.”