The City watchdog said it introduced the new measures, which must be implemented by fund management groups by 31 October, in an effort to “strengthen protection for investors”.
From 31 October, synthetic ETF managers will have to top-up the collateral level for each of their domestic synthetic ETFs to achieve at least 100% collateralization to ensure there is no uncollateralized counterparty risk exposure arising from the use of financial derivatives to replicate index performance.
In addition, ETF managers will also have to put in place a “prudent haircut” policy for circumstances where the collateral is taken in the form of equity securities. The market value of this collateralization must be at least 120% of the related gross counterparty risk exposure.
Alexa Lam Acting chief executive officer of the SFC said: “Building on our continuing effort in strengthening protection for investors, we believe the increase in collateral levels will better mitigate the counterparty risks faced by the domestic synthetic ETFs.
“However, as with any investment products, investors should always exercise caution when making investment decisions, particularly during volatile market situation.”
