The industry is constantly evolving. The flow of new ideas has continued to grow in the past decade with the emergence of new business models such as the use of blockchain technology or peer-to-peer trading platforms without the involvement of intermediaries. In recent years, the focus has been on the rise of VA exchanges and other VA Service Providers (VASPs) such as crypto wallet providers and custodians, etc., and their increasing intersection with the real economy and traditional financial services regulation. Meanwhile, growth continues in innovative products and venues which include emerging market bonds, securities financing, niche commodities markets and providing ATS.
Changing regulatory requirements
The regime for recognised market operators (RMOs) is cautiously being calibrated by the regulators, with the MAS identifying operational risk is a key factor affecting market operators and introducing new liquidity risk requirements while also recalibrating existing solvency requirements downwards. This provides scope to lower the cost of entry for players that do not pose systemic risks, providing first-mover advantages and the ability to offer trading platform solutions, especially in the non-retail market segment.
A calibrated regulatory regime would also enable new players to better transition from start-up to larger market operator and finally an established, approved exchange.
In Hong Kong, the ATS definition is confined to facilities for trading or clearing securities, futures contracts or OTC derivative transactions. In recent years, the SFC has been conscious whether licenced corporations have taken measures to implement frameworks to govern controls surrounding their algorithmic trading systems and has issued certain guidelines on top of the code of conduct requirements. As for VA exchanges, a new licensing regime will come into effect shortly. Under the proposed regulations, any trading platform that facilitates the offer, sale, or purchase of any VA in exchange for money or other Vas will fall within the definition of VA exchanges. Such platforms will need to be licensed by the SFC, as well as to comply with the anti-money laundering (AML) and counter-terrorism financing (CTF) obligations set out in the AML and CTF Ordinance. This means that nearly all VA exchanges operating in Hong Kong will need to be licensed by the SFC. The proposed regulations, however, have not been extended to other VASPs yet.
Firms should also be aware that market abuse surveillance and technology risk management continue to be at the forefront of the regulators agenda.
How we help RMOs / Automated trading services (ATS) / VA Operators
We work with a wide range of RMOs and VA exchanges , from trading platforms to start-ups and innovative new concepts as well as a number of ATS Operators, managing their compliance burden.
Licencing – we have local expertise to assist new markets operators and exchanges, , ATS and VA Operators (collectively, Relevant Operators) from concept to licensing in Singapore and Hong Kong.
Compliance support – we partner with Relevant Operators to meet their local compliance obligations, through ongoing compliance advisory, implementation support, focused compliance reviews, and short-term resourcing.
Market abuse – Relevant Operators are at the front line of the fight against market abuse. We help them to develop market abuse risk assessments, establish effective controls, and calibrate and implement surveillance solutions.
Global standards – we work closely with Relevant Operators to help them align practices to international standards and prepare to work with third country participants.