SFC replaces its leveraged and inverse product circular with a wider listed structured fund framework
L&I product providers must rename products away from ETF branding, publish next-day leverage factors before market open, and halt Single Stock products whenever the underlying Hong Kong share is suspended
Change
On 24 July 2026 the SFC issued a Circular on listed structured funds that supersedes its Circular on Leveraged and Inverse Products and the related supplemental circular of 22 May 2020, carrying forward the L&I requirements into an appendix, extending them to Single Stock L&I Products, and adding a framework under which it will consider authorising Defined Outcome Listed Structured Funds.
Why it matters
The binding content sits in operational obligations rather than in the authorisation framework. A provider must have at least one market maker in place when trading commences and continuously thereafter, and the product must be terminated when all market makers resign, timed to the last resignation taking effect. Products using a flexible leverage structure must publish the next trading day's targeted leverage factor on both the product website and the HKEX website after market close, and in every case before the Hong Kong market opens. Providers must notify the SFC as soon as practicable when remaining capacity falls to a level that may constrain daily rebalancing or creation. Single Stock L&I Products referencing Hong Kong-listed shares must be halted whenever the underlying share is halted. Naming is prescriptive: these products cannot be called ETFs, must be named Leveraged Product or Inverse Product, and must carry both the factor and the word daily.
Implications
- — Providers of existing SFC-authorised L&I Products must review product names, Product Key Facts Statements and offering documents against the prescriptive naming format — Leveraged Product or Inverse Product, carrying the leverage or inverse factor and the word daily, and never ETF — since the circular states the requirement in mandatory terms without a stated transition for products already authorised.
- — Providers of flexible-leverage products must build a publication process that puts the next trading day's targeted leverage factor on both the product website and the HKEX website after each market close and before the Hong Kong market opens, since a factor published after the open leaves investors trading a product whose leverage is undisclosed for that session.
- — Providers must maintain continuous market-maker coverage and agree resignation notice periods long enough to permit orderly unwinding, because the resignation of the last market maker triggers termination of the product at about the same time that resignation takes effect, with advance notice to investors required under 11.5 of the UT Code.
- — Single Stock L&I Product providers must establish a business continuity plan acceptable to the SFC with defined triggers for SFC reporting and contingency activation, pre-agreed defensive measures such as a stop-loss arrangement with swap counterparties, and an automatic halt where a Hong Kong-listed underlying is suspended.
- — Intermediaries distributing listed structured funds must apply Code of Conduct paragraphs 5.1A to 5.3 for derivative products and evidence staff training on the risks and features of each product, since the circular treats distribution competence as a condition of the framework rather than a general expectation.
Who is affected
- — Providers of SFC-authorised listed structured funds and L&I Products
- — Providers of Single Stock Leveraged and Inverse Products
- — Intermediaries distributing listed structured funds in Hong Kong
- — Market makers for listed structured funds