The Securities and Futures Commission (SFC) announced last week that it was allowing L&I products that track mainland equity indices to be launched in the SAR, according to a circular issued by the regulator. Previously, regulations specifically said that the SFC will only accept “liquid and broadly-based Hong Kong and non-mainland foreign equity indices”.
With the new regulations, CSOP Asset Management is now mulling plans to launch an L&I product tracking a mainland index, according to a Hong Kong-based spokesman for the firm.
“[After the issuance of the new circular], we have started to prepare. Currently, it is still at the research stage,” he said.
Under the new regulations, mainland index-tracking leveraged products will be subject to a maximum leverage factor of two times (2x), according to the SFC.
However, inverse products will be subject to a maximum leverage factor of one time (-1x). For non-mainland indices, the maximum leverage factor is (-2x), the circular noted.
The SFC has been relaxing regulations on the products. For example, the leverage factor for inverse funds was raised to -2x in March last year from the previous -1x.
Product demand?
CSOP AM, which also recently launched a leveraged Nasdaq ETF in Hong Kong, believes that there will be sizable demand for mainland-focused L&I products.
The spokesman said that mainland-focused L&I products are expected to gather assets up to three times larger than the HK$7.63bn ($980m) Hang Seng Index L&I market.
The total L&I market — 24 listed products — had assets of HK$8.33bn at the end of April, according to data from the local bourse.
L&I products were only allowed in Hong Kong in 2016. The sector remains small, accounting for 2% of the SAR’s overall HK$295bn ETF market.
Elsewhere in Asia, China-focused L&I products have been made available to investors in Taiwan. For example, Yuanta Securities manages the Yuanta Daily CSI 300 Bull 2X ETF, while Cathay Securities manages the Cathay FTSE China A50 Daily Leveraged 2X ETF and an inverse ETF tracking the same index, according to data from Taiwan Stock Exchange.
