HK Ups Collateral Levels For Synthetic ETFs

Hong Kong regulators have announced a new standard for synthetic ETFs.

Hong Kong regulators have announced a new standard for synthetic ETFs, Financial Times reports. The Securities and Futures Commission (SFC) said providers are required to “top up” the collateral level for at least 100% collateralization for each fund. No uncollateralized counterparty risk exposure from using derivatives to replicate index performance would be allowed. The collateral’s market value should be equivalent to at least 120% of the related gross counterparty risk exposure when provided in the form of equity securities. All synthetic ETFs run by exchange-licensed managers and regulated primarily by the SFC would have to begin increasing their collateral within two weeks. Full collateralizations need to be in place latest by October 31.

Click here for the story from Financial Times.