Hong Kong Securities and Futures Commission sets new requirements to expand listed structured funds to include single stock leveraged and inverse products and defined outcome funds

The Hong Kong Securities and Futures Commission (SFC) has issued a circular setting out new regulatory requirements for product issuers to broaden the range of listed structured funds that may be offered to the public in Hong Kong, including Single Stock Leveraged and Inverse (L&I) Products and Defined Outcome Listed Structured Funds. The circular supplements the structured fund requirements in section 8.8 of the Code on Unit Trusts and Mutual Funds and sets additional conditions under which the SFC would consider authorising listed structured funds for public offerings under sections 104 and 105 of the Securities and Futures Ordinance, while incorporating and superseding the SFC’s May 2020 circulars on L&I products. The framework includes general requirements on product naming and structure, offering document disclosures, market making arrangements, performance simulators, investor education and distribution, alongside additional safeguards for specific product types. For Single Stock L&I Products, the SFC will only accept products referencing a highly liquid mega-cap stock listed on a major overseas exchange, excluding overseas stocks that may be dually listed in Hong Kong and any stock listed on Mainland exchanges, and expects these products to generally be subject to a maximum leverage factor of 2x to -2x, with lower leverage potentially required depending on the underlying stock’s volatility.