On 5 June 2026, the Securities and Futures Commission (SFC) revised its Circular on listed structured funds (Circular), which supersedes and replaces the SFC’s previous Circular on Leveraged and Inverse Products and the related supplemental circular. The Circular expands the types of products that can be authorised and adds several new or enhanced operational requirements. Below is a summary of the key updates and changes.
1. Expanded Scope of Single Stock L&I Products
The Circular broadens the range of listed structured funds to include Single Stock Leveraged and Inverse (L&I) Products referencing highly liquid Hong Kong-listed mega-cap stocks. Prior to the expansion, Single Stock L&I Products offered to the Hong Kong public may only reference highly liquid mega-cap stocks listed on major overseas exchanges. It should be noted that the expanded scope excludes shares of companies which may be dually listed in Hong Kong and the Mainland, as well as shares listed on any Mainland exchanges.
2. Enhanced Requirements for Single Stock L&I Products
While the scope of Single Stock L&I Products is expanded, the Circular imposes the following additional safeguards:
- Acceptability of product provider: The product provider must demonstrate sufficient experience in managing L&I Products and belong to a reputable group with adequate resources. The product provider must also demonstrate diversified counterparty arrangements and sufficient initial product capacity during the application process.
- Business continuity plan (BCP): Implementation of a robust BCP covering the guiding principles underpinning the course of actions to be taken specific triggers, details of different contingency measures and defensive measures, and notifications to investors and arrangements for handling complaints and enquiries.
- Defensive measures: Adoption of defensive measures (e.g., stop-loss mechanisms) with appropriate disclosures.
- Trading suspension: In the event that the underlying share of a Single Stock L&I Product is halted or suspended from the trading – (i) if such product references Hong Kong-listed share, its trading must be halted or suspended from trading; and (ii) if such product references non-Hong Kong-listed share, the product provider should assess whether it is appropriate to request HKEX to halt or suspend the trading of such product.
3. Capacity Monitoring and Enhancement of L&I Products
The Circular requires product provider to continuously monitor its L&I products’ capacities to ensure it can support the targeted leveraged or inverse exposure and make timely enhancements to maintain a reasonable capacity buffer with brokers and swap counterparties to mitigate disruption to product operations. Product providers, for example, should monitor market movements of underlying assets and keep abreast of evolving market conditions and their implications on the products’ capacities by maintaining close communication with brokers and derivatives counterparties. To manage capacity, product providers should engage with existing brokers and derivatives counterparties and/or onboard new ones and diversify the means of obtaining the leveraged and inverse exposure such as the use of options or margin positions.
Where material capacity issues arise that may adversely affect the product’s capacity including where the remaining available capacity has reached a low level that may constrain the products’ daily rebalancing activities and creation, the product provider is required to notify the SFC as soon as practicable, together with an assessment of the associated operational risks and corresponding mitigation measures.
4. Other Key Points
There is no change in the maximum leverage factor acceptable to the SFC. L&I Products, including Single Stock L&I Products, should be subject to a maximum leverage factor of 2x to -2x in general, except that:
- Inverse Products referencing Mainland equity indices should be subject to a maximum leverage factor of one time (-1x); and
- subject to an underlying stock’s volatility, only a lower leverage factor may be allowed for Single Stock L&I Products.
The SFC also indicates in the Circular that overseas-domiciled L&I Products may be assessed on a case-by-case basis, subject to modified requirements.
Product Providers are encouraged to consult the SFC early if they are interested in launching L&I Products or other Listed Structured Funds in Hong Kong.
