Hong Kong Regulator Approves Synthetic ETFs; First in 18 Months

Hong Kong’s regulator approved six Deutsche Bank AG synthetic exchange-traded funds, the first time it has allowed such products since July 2010.

Synthetic ETFs are investments that mimic the behavior of exchange-traded funds through the use of derivatives such as swaps. The products, authorized on Dec. 30, are part of Deutsche Bank’s db X-trackers series, according to the Securities and Futures Commission website.

The SFC’s approval comes more than three years after the bankruptcy of Lehman Brothers Holdings Inc. Following that insolvency, financial institutions in the city faced criticism for selling investment products containing derivatives to individual investors.

Ernest Kong, an SFC spokesman, said yesterday the synthetic ETFs would have to receive Hong Kong stock exchange approval before being traded.

The products “are listed, so the stock exchange is the final regulator,” Kong said by telephone in Hong Kong. “There is still some work to be done with the exchange.”

Amy Chang, a Hong Kong-based spokeswoman for Deutsche Bank, declined to comment when contacted by telephone yesterday.

The last synthetic ETF the authority approved was iShares Asia Trust, and the last it authorized for Deutsche Bank was in March 2010, according to the regulator’s website.

The funds are the MSCI China TRN Index ETF, MSCI India TRN Index ETF, MSCI Indonesia TRN Index ETF, MSCI Malaysia TRN Index ETF and the MSCI Thailand TRN Index ETF. The other is the db x-trackers II Australian Dollar Cash, according to the SFC website.

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