CSOP to launch Hong Kong’s first (-2x) inverse product

The SFC has authorised CSOP Asset Management in Hong Kong to launch the CSOP Hang Seng Index Daily (-2x) Inverse Product, according to a filing from Hong Kong Exchange. The product is expected to be listed on the Hong Kong bourse on 28 May.

FSA sought more information from CSOP Asset Management, but the firm was not able to comment in time for publication.

Inverse products aim to deliver the opposite of the daily return of the underlying index that they track, according to information from the SFC. On the other hand, leveraged products typically aim to deliver a daily return equivalent to a multiple of the underlying index return that they track.

The launch of the CSOP product comes after the regulator relaxed rules on inverse products in March. Previously, inverse products were subject to a maximum leverage factor of one time (-1x), according to a circular issued by the SFC. Under the new rules, the leverage factor cap of inverse products was raised to two-times (-2x).

So far, only CSOP AM will be offering an inverse product that has a leverage factor of two-times, SFC data shows. Besides its new product, CSOP AM manages four other leveraged and inverse (L&I) products.

It has been a while since a L&I product has been launched in Hong Kong. The last was the E Fund Yuanta Hang Seng Index Daily (2x) Leveraged Product, which was rolled out in August 2017.

L&I products were only allowed to be launched in Hong Kong in 2016 and continue to be a small market. There are only around 22 L&I products listed on the exchange with around HK$6.97bn ($890) in assets, accounting for just 4.1% of Hong Kong’s ETF market, according to data from HKEX.

Last year, a number of fund managers have also delisted some of their L&I products, including three from Mirae Asset Global Investments, two from CSOP AM and four from Samsung Asset Management.

“They lacked scale,” Mohamed M’Rabti, head of ETFs at settlement firm Euroclear, told FSA previously. “In the first place, it was the market makers that generated some traffic, and I think retail investors need more education about L&I products before they really pick up.