Circular on listed structured funds

On June 05, 2026, the Securities and Futures Commission ("SFC") issued a circular supplementing structured fund requirements in 8.8 of the UT Code, setting out additional requirements for authorising listed structured funds for public offerings under sections 104 and 105 of the SFO. This circular incorporates and supersedes the SFC's Circular on Leveraged and Inverse Products and the related supplemental circular both dated 22 May 2020.

Overview of Listed Structured Funds

Listed structured funds are collective investment schemes listed on stock exchanges, typically embedding derivatives and leverage, or offering structured payouts when pre-determined conditions are met. Current SFC authorisations include Leveraged and Inverse Products tracking broad equity or commodities indices, as well as Single Stock L&I Products. In overseas markets, Defined Outcome Listed Structured Funds using options-based strategies, such as those known as defined outcome ETFs in the United States, are popular. To meet demand in Hong Kong, the SFC is prepared to consider authorising these funds under a framework comprising general requirements and additional safeguards applicable to specific types.

General Authorization Requirements

Products must meet the Overarching Principles and UT Code in the SFC Handbook, particularly ETF requirements in 8.6. Due to technical complexity, they must also meet additional requirements in this circular. Product naming must differentiate them from conventional ETFs. Structures may use futures, swaps, or options strategies, with the SFC referencing Listing Rules Chapter 15A for underlying asset eligibility. Offering documents require upfront disclosure of key risks in the Product KFS, such as time horizons, volatility, and costs including roll costs, which are costs incurred when replacing near-term futures contracts with long-dated ones. Providers must ensure at least one market maker is present. Performance simulators are required for non-delta-one products to demonstrate performance over the fund's launch period using user-friendly interfaces. Providers must conduct extensive investor education, and intermediaries must follow Code of Conduct requirements with respect to derivative products dated 31 August 2010, staff training, and acting in the best interests of customers.

Specific Requirements for L&I Products

These requirements cover Leveraged Products, Inverse Products, and Single Stock L&I Products. The SFC will only accept applications for liquid broad-based equity indices, specific non-equity indices, Mainland equity indices via swaps, or highly liquid mega-cap stocks. Generally, a maximum leverage factor of 2x to -2x applies, except Inverse Products referencing Mainland equity indices (max -1x) and Single Stock L&I Products (lower factor based on volatility). Naming must not include 'ETF' and must state 'daily', 'Leveraged Product', or 'Inverse Product' with the factor. Distinct stock short names starting with 'L' or 'I' and code ranges will be designated. Market makers are critical; products must terminate if all resign, with orderly unwind provisions. HKEX monitors market maker performance. Exchange participants are advised not to provide margin financing. Providers must monitor capacity, communicate with counterparties, and notify the SFC of capacity constraints.

Specific Safeguards for Single Stock L&I Products

Due to volatility and complexity, additional safeguards apply. Provider acceptability is assessed holistically based on experience, group reputation, and counterparty arrangements. Providers must establish a robust Business Continuity Plan acceptable to the SFC, covering triggers, contingency measures, and investor notifications. Defensive measures, such as pre-agreed stop-loss mechanisms, must be implemented and disclosed. For products referencing Hong Kong-listed shares, trading must be halted if underlying shares are halted. For non-Hong Kong shares, providers must assess whether to request a trading halt based on investor interests, duration of the halt, counterparty ability, and liquidity implications.

Offshore Products and Regulatory References

For L&I Products domiciled outside Hong Kong, the SFC will assess applications on a case-by-case basis, potentially subjecting them to modified requirements to ensure comparable investor safeguards. Relevant regulatory references include the UT Code, SFC Circulars on Code of Conduct and Derivative Products, HKEX circulars on margin financing, and Guidance to the ETF Industry.