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.
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