Crypto start-up AAX sees bitcoin futures to remain unregulated as Hong Kong tightens industry scrutiny

Atom launches new exchange as Hong Kong unveils licensing framework for cryptocurrency assets to protect investors
Backed by London Stock Exchange Technology, AAX offers lower trade latency, more transparent trade data for clients

Digital currencies

Georgina Lee

Published: 1:00pm, 7 Nov 2019

Why you can trust SCMP

Atom Group, which launched a new cryptocurrency exchange on Thursday, is studying new guidance from regulators in Hong Kong in the market amid increased scrutiny on trading platforms to protect investors.

The new exchange Atom Asset Exchange, or AAX, comes a day after the Securities and Futures Commission announced a regulatory framework governing virtual asset trading platforms, with chief executive Ashley Alder saying some futures or derivatives contracts that offer high leverage are extremely risky and could potentially be illegal under the law.

“We welcome the SFC’s latest guidance,” AAX said in a statement after the new guidelines. AAX has always envisaged operating in regulated markets for cryptocurrencies that encourage innovation but that also provide investor protections. We see the SFC’s announcement as an important step in that direction.”

The industry has captivated investors with wild returns and spectacular collapses in recent years, raising safety issues for investors and prompting the SFC to update its framework based on an “opt-in” approach to regulate operators and portfolio managers. Some operators, which offer products that do not qualify as a “security” in the SFC’s books, may remain outside the policing.

“I believe that part of the market will remain unregulated for a while,” AAX chief executive Thor Chan said earlier in an interview on Friday, before the SFC announcement. He added in the interview that AAX may not fit into the framework, and the group will instead seek more licences in Asia to build banking relationship to facilitate clients’ trading.

A regulated entity is likely to find it easier to establish banking ties to facilitate the conversion between cryptocurrency and fiat money, some analysts have said. The lack of such support is said to be the key reason for the collapse of Gatecoin in April, one of the oldest virtual exchanges in Hong Kong, as multiple banks refused to deal with its money flow on compliance concerns.

The flip side is that regulatory oversight could temper growth and raise costs associated with additional compliance requirements.

China has ‘no timetable’ for launch of its digital currency, says PBOC Governor

The group is looking forward to further changes in the industry, especially the People’s Bank of China’s efforts in advancing its digital currency project, Chan said in the interview. The central bank is issuing a digital currency backed by renminbi, and the nation’s commercial banks and other financial institutions will also participate as two-way conversion agencies.

Some industry players believe that a central bank-backed stable coin could lead to further development of cryptocurrency asset ecosystem to the benefit of the industry.

“We remain hopeful that with the Chinese central bank’s upcoming launch of its own digital currency, regulation will continue to evolve in response to the market development,” he said.

Hong Kong fast developing as a cryptocurrency centre

AAX is the first exchange whose trade matching engine is powered by the technology division of the London Stock Exchange Group (LSEG). The platform seeks to differentiate itself from competitors with lower latency and greater transparency in post-trade data in compliant with European regulatory standards.

It focuses on trading high liquidity digital assets. Apart from futures contracts, AAX offers spot trading on more than 50 virtual currencies, though none of them are currently settled or denominated in fiat money. It plans to expand by integrating cryptocurrency with other traditional asset classes, such as gold and foreign exchange, said chief operating officer Michael Wong.

Post