Hong Kong regulator tightens leveraged ETF rules after SK Hynix product crash

On July 24, the Hong Kong Securities and Futures Commission (SFC) issued a revised circular introducing a "flexible leverage structure" for leveraged and inverse exchange‑traded products. The new rules require certain high‑volatility products to adopt adjustable leverage ratios, while not mandating the structure for all such products. Industry participants said the change aims to protect investors and support long‑term market health, though some issuers remain cautious about implementation challenges.

Southern (南方東英) announced that its twelve leveraged ETFs will adopt the flexible structure from August 3, with leverage floors as low as 1.1× in extreme scenarios. The regulator’s move comes as a 2‑times leveraged SK Hynix (SK Hynix) ETF, popular among Hong Kong retail investors, plunged nearly 80% from its peak of HK$193 to around HK$39, wiping out substantial retail wealth. Reports also allege a 26‑year‑old trader at a Central‑based asset manager misused HK$5 million of firm funds to bet on the product, resulting in losses of about HK$150 million.

Analysts stress that leveraged and inverse ETFs are designed for short‑term, day‑trading use and are unsuitable for overnight or long‑term positions. They advise investors to limit exposure to a small portion of their portfolio, set strict stop‑losses, and avoid borrowing or margin trading when dealing with such high‑risk instruments.