Hong Kong looks ready to invite retail traders back to the crypto casino.
In a new consultation paper, the Securities and Futures Commission of Hong Kong (SFC) proposed "to allow all types of investors, including retail investors, to access trading services provided by licensed VA [virtual asset] trading platform operators."
The proposal recommends that several conditions be met before crypto trading for retail investors is reopened, however—including knowledge and risk assessments, as well as potentially setting limits to how much exposure traders are allowed.
The SFC identified criteria for which cryptocurrencies would be available for trading, too. Trading platforms would be responsible for vetting the team behind a token, as well as marketing materials, legal risks, and to establish "how resistant it [the token's network] to common attacks" such as a 51% attack.
After that, though, the token pool appears relatively shallow, with the Commission proposing that only "large-cap virtual assets" be eligible for listing.
This is defined by the SFC as tokens "which are included in at least two 'acceptable indices' issued by at least two independent index providers."
These and other aspects of the newly-proposed crypto regime in Hong Kong are still open for discussion. Interested parties looking to contribute to the process have until March 31, 2023. The regime is expected to come into effect on June 1, 2023.
The Commission said that the "virtual asset landscape has changed significantly" since it introduced the current regulatory framework back in 2018. This framework only allowed trading platforms to offer their services to professional traders and institutional clients.
Over time, this approach has loosened some. Last year, for example, the SFC allowed retail traders to begin trading derivative products and crypto exchange-traded funds (ETFs).
The latter types of products allow investors to gain exposure to the underlying cryptocurrency without needing to self-custody the asset. HKEX was one of the first stock exchanges in Hong Kong to launch a Bitcoin and Ethereum ETF product last December, each tracking futures traded on the Chicago Mercantile Exchange (CME).