Asian Firms in Talks for Hong Kong-Traded Leveraged Nasdaq ETFs

  • Hong Kong's SFC approved leveraged and inverse ETFs this month
  • Nasdaq 100-linked ETF began trading in Hong Kong this week

Nasdaq Inc. is in preliminary talks with Asian asset managers to introduce leveraged and inverse exchange-traded funds in Hong Kong after the products were approved by the city’s regulator.

While details are yet to be discussed, there’s a good chance leveraged and inverse ETFs tracking the Nasdaq 100 Index will be offered in Hong Kong, Robert Hughes, head of index and advisor solutions at Nasdaq, said in an interview. He wouldn’t name the firms involved in the talks.

“We are in initial stage conversations with sponsors who are interested," said Hughes. “They are all Asian-based firms. If you’re reading the tea leaves out there, it would be great if there was a product by the end of the year -- that would be an aggressive timetable."

Hong Kong’s Securities and Futures Commission this month published a circular for leveraged and inverse products, setting requirements from product naming to market making arrangements. Only those that track foreign equity indexes will be eligible at the initial stage.

The Nasdaq 100 will be familiar to Hong Kong investors after an ETF tracking the index, managed by BMO Global Asset Management, began trading in the city this week. Apple Inc. and Microsoft Corp. together comprise about 20 percent of the gauge, while Inc. and Facebook Inc. are also among the top five weightings.

Leveraged and inverse funds have become increasingly popular in overseas markets, particularly in Asia, and there may be demand for these products in Hong Kong, the SFC said in its circular. 

Leveraged ETFs use derivatives to increase the size of gains or losses on an underlying index, while inverse ETFs give traders a way to profit from falling markets. The products, popular in countries from the U.S. to Japan, have come under scrutiny for exposing individual investors to the potential for outsized swings that they may not fully understand.

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