Hong Kong's CSOP Asset Management announced it will adopt a flexible leverage framework for 12 exchange-traded funds (ETFs), including those tracking Samsung Electronics and SK Hynix, after the city's securities regulator adjusted rules in an effort to smooth market volatility.
Effective August 3, the single-stock leveraged and inverse ETFs will adopt a "flexible leverage structure", following the Hong Kong Securities and Futures Commission's guidance last week on listed structured funds, CSOP said in a filing to the Hong Kong bourse on July 27.
The products' leverage ratios will no longer be fixed, allowing the target leverage factor to be adjusted daily based on market conditions up to a maximum of two times, according to the filing.
Under extreme market conditions, the leverage may be as little as 1.1 times, or -1.1 times for inverse products, the filing showed.
All 12 products will be renamed to reflect the change, CSOP said. For example, the CSOP SK Hynix Daily (2x) Leveraged Product will become the CSOP SK Hynix Daily Max (2x) Leveraged Product.
CSOP reiterated in its filing that the products are designed for short-term trading and are not intended to be held for more than one day.
"We will strengthen investor education efforts to help investors gain a more comprehensive understanding of product characteristics and associated risks," CSOP said in a written comment to Reuters.
Hong Kong's securities regulator on Friday required leveraged and inverse exchange-traded products to have the flexibility to lower the leverage when necessary to mitigate tracking difference risk during turbulent trading.
The adjustment comes as leveraged ETFs have drawn scrutiny over concerns that they may have contributed to outsized moves in South Korean stock markets.
A raft of leveraged ETF products tracking Korean chipmakers Samsung Electronics and SK Hynix have attracted massive inflows and retail participation this year amid the global AI frenzy, exacerbating market volatility and raising regulatory concerns.
CSOP's SK Hynix-tracking product rapidly became Hong Kong's largest ETF in June, amassing more than US$20 billion (HK$156 billion) in assets, before its shares tumbled about 80 percent from their record high within a month.
South Korea's top financial regulator said on Tuesday that authorities would consider a cap on single-stock leveraged ETF investments for retail investors if needed, according to local media reports.
Reuters
