On July 24, 2026, the SFC enhanced the regulatory framework for leveraged and inverse products to ensure orderly market trading and investor protection.
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On July 24, 2026, the Securities and Futures Commission ("SFC") issued a revised circular to enhance its regulatory framework for authorised leveraged and inverse products (L&I Products), providing product providers greater flexibility in managing their products while drawing investors’ attention to their nature as daily trading instruments.
Regulatory Framework and Leverage Structure
The SFC mandates that L&I Products with highly dynamic capacity, particularly within the expanding Single Stock L&I Products market since early 2026, adopt a flexible leverage structure. This allows the leverage factor to vary daily within caps of 2x for leveraged and -2x for inverse products. Consequently, providers gain flexibility to manage products during high-volume sessions by adjusting leverage factors, with daily variations disclosed post-market close to reinforce investor awareness of the daily trading nature.
Transparency and Disclosure Obligations
To enhance transparency, the SFC requires L&I Products providers to publish the targeted leverage factor for the next trading day on their product websites and HKEX website after market close every day. Their product names should also indicate both the flexible leverage feature and the maximum leverage factor. Investors are reminded that these products are not designed for holding beyond one day, as their performance may significantly deviate from the underlying assets.
Investor Education and Suitability
Ms Elisa Ng, the SFC’s Executive Director of Investment Products, described these enhancements as timely adjustments supporting sustainable market development while maintaining investor safeguards. The updates promote a better understanding of the daily nature and complexity of L&I products. Investors must understand their features and associated risks, distinguish them from overnight or long-term holding products, and carefully assess suitability before investing. To facilitate this, the SFC has issued an infographic themed 'D-A-I-L-Y' to provide a checklist urging daily assessment when trading L&I Products.
Definitions and Market Context
L&I Products include those tracking broad-based equity or commodities indices, including Single Stock L&I Products referencing a single stock. Product capacities refer to the size of underlying exposure supported, considering swap exposures, position limits, liquidity needs, and alternative means. Single Stock L&I Products and certain index-based products are likely to adopt the flexible leverage structure. Overseas leveraged and inverse ETFs generally have similar flexibility. The document was last updated on 24 Jul 2026.
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