On 24 July 2026, the Securities and Futures Commission (SFC) revised the Circular on listed structured funds to introduce flexible leverage structure for authorised leveraged and inverse products (L&I Products), with the view to provide product providers greater flexibility in managing their products and draw investors’ attention to the products’ nature as daily trading instruments.
Given the evolving market environment and factors that may affect the capacity of L&I Products, the SFC will require L&I Products with highly dynamic capacity dependent on evolving market conditions to adopt a flexible leverage structure. Under this structure, the leverage factor may vary daily within the existing caps of 2x for leveraged products and -2x for inverse products. Product providers will therefore have more room to manage L&I Products during high-volume trading sessions by lowering the targeted leverage factor when necessary.
Factors that may affect L&I Products’ capacities (i.e. the size of the underlying leveraged or inverse exposure that a product can support) include swap exposures committed by counterparties, position limits applicable to futures and options, daily rebalancing liquidity needs and the availability of alternative means to achieve the targeted exposure. Single Stock L&I Products in general, and certain index-based L&I Products depending on the liquidity of the underlying asset, leverage factor and market conditions are likely to adopt a flexible leverage structure in accordance with the enhanced requirement.
The targeted leverage factor for the next trading day should be published on the product’s website and Hong Kong Exchanges and Clearing Limited (HKEX) website after market close on each trading day. Such potential daily variation in these products’ leverage factors may raise investors’ awareness of L&I Products’ daily product nature.
In light of the revised circular, when product providers design their L&I Products, they should assess the capacity of the underlying instruments to create exposure to the underlying stocks/indices and determine whether flexible leverage structure should be applied to their L&I Products. Early consultation with the SFC is encouraged to ensure the proposed design of the L&I Products meets the requirements of the SFC.
For further information, please contact:
Calvin Li, Deacons
calvin.li@deacons.com
