HKEX Insight

Hong Kong’s ETP ecosystem broke turnover records for the fourth consecutive year in 2024.

This sustained success story is testament to the time, commitment and conviction invested in recent years in creating the right conditions for liquidity to connect with diverse opportunities and for the ecosystem to thrive.

Innovation on the product side has been instrumental to the progress we have seen.

And that’s been brought into sharp focus recently with the first listings of Single Stock L&I Products here in Hong Kong and Asia.

This new milestone enhances HKEX’s product offerings by connecting investors to individual stock performance for overseas listings, expanding their opportunity set and offering valuable diversification options.

There’s a great deal of appetite for these products, as trends in the US and Europe attest, and new Single Stock L&I Products are the latest in a long line of ETP innovations at HKEX – particularly during the past couple of years – with notable product releases, including Covered Call, Spot Virtual Asset (VA), thematic and smart beta ETFs, increasing the number of listed ETPs from 146 at the end of 2020 to 194 at the end of 2024.

Now Hong Kong offers one of the most diverse ETP ecosystems in Asia with exposures ranging from Hong Kong, Mainland China to global equities, from fixed income and currency to gold and VA.

The influx of issuers to the market has been instrumental in driving progress.

However, coordinated efforts across the regulatory ecosystem have been equally crucial in expanding the supply side and ensuring robust governance of the market.

Starting in 2016, Hong Kong’s Securities and Futures Commission (SFC) has approved leveraged and inverse ETPs, streamlined authorisation, and introduced regulatory steps for transparency and protection.

The launch of ETF Connect in 2022 has significantly boosted cross-border investment.

Since then, ETF average daily trading volumes on both the Northbound and Southbound channels have increased markedly, reaching RMB4.0 billion and HK$4.1 billion, respectively, in Q4 2024, compared with RMB108 million and HK$1.4 billion in Q4 2022, according to HKEX statistics.

The approval of VA Futures ETFs in 2022 and Spot VA ETFs in 2023 by the SFC boosted product diversity, attracting more investors and increasing trading volumes with exposure to virtual assets like Bitcoin and Ether, enhancing market liquidity.

On top of new products and a range of supportive policy measures, HKEX has improved market infrastructure to build a thriving ETP ecosystem.

In 2018, we launched the Orion Trading Platform to enhance trading capacity, stability, and latency, benefiting ETP market participants. The introduction of the International Central Securities Depository (ICSD) settlement model in 2019 allowed ETP shares to move seamlessly across international stock exchanges, helping European issuers expand their distribution network into Asia through Hong Kong.

In 2020, the implementation of a new spread table and a continuous quoting market-making regime made trading more cost-efficient for investors, and revisions to ETF market-making obligations and incentives in 2021 reduced costs for market makers and encouraged active quoting. Since 2022, HKEX has continuously upgraded its market data services, including real-time ETF data feeds, enhancing trading transparency and investor confidence.

Looking into 2025 and beyond, HKEX plans to enhance its ETP business through the digitisation and automation of the in-kind creation and redemption process for ETPs. Using a digital portal to replace several manual, paper-based processes, this initiative will support ETP market efficiency by lowering the operational burden for key ETP participants.

Put together, this multi-dimensional approach has had a dramatic impact on the ETP ecosystem and market liquidity.

Trading volume has effectively tripled since 2020 - but where do we go from here?

The launch of Single Stock L&I products is just the first phase of what we expect will be a number of such products to come to market.

Similarly, we see more growth potential for our VA and Covered Call ETF ecosystem. The introduction of VA ETFs in December 2022 has provided regulated exposure to cryptocurrencies, boosting market liquidity and attracting a broad range of investors.

Covered Call ETFs have gained interest due to their ability to generate a potential regular income stream from option premiums and offer partial downside protection, appealing in volatile markets.

And there’s still ample room to expand ETF Connect.

The expansion in eligibility criteria for issuers that came into effect last year has significantly broadened the scope of eligible ETFs, allowing for greater cross-border investment opportunities.

By lowering the average daily AUM and locally-listed stock weighting requirements, the new criteria have enabled issuers to devise more innovative and diverse ETF products for the market, and we look forward to welcoming more issues in the future.

These are just some of the energising developments in prospect for Hong Kong’s ETP ecosystem, and when talking to clients on both the issuer and investor side, the excitement about the future is palpable.

That’s because we have made great progress with our partners in creating a diverse, thriving ecosystem that investors and issuers want to be part of, and which is growing in prominence as Asia’s leading ETP hub.

1. What are Leveraged & Indexed Products?

Leveraged and Indexed (L&I) Products are structured as Exchange Traded Funds (ETFs) and seek to achieve short-term investment results that correspond to the magnified or inverse performance of their underlying benchmarks on a daily basis.

2. What is a Single Stock L&I Product? 

A Single Stock L&I Product is a listed leveraged and inverse product using a fund structure that aims to deliver a daily return equivalent to a multiple of a single stock’s return, designed to magnify the gains or losses of an underlying stock and which significantly increases potential risks and rewards through concentration.

3. How many Single Stock L&I Products are listed at HKEX? 

Eight Single Stock L&I Products listed at HKEX on 24 March 2025. You may find full details here.

4. What does the expansion to cover Single Stock L&I Products mean for HKEX? 

It represents a strategic enhancement of HKEX’s product offerings, facilitating additional investment strategies and attracting a broader investor base by enabling exposure to individual stock performance. HKEX is the first exchange to offer these innovative products in Asia, reinforcing its competitive edge as Asia’s ETP marketplace.

5. What are the benefits and risks of trading Single Stock L&I Products vs Single Stocks? 

Single Stock L&I Products amplify daily return of a reference stock or hedge against potential losses. Like ETFs, the risk of L&I Products can include counterparty risk, market risk, tracking errors, trading at discount or premium, and liquidity risk.

6. How is Hong Kong’s ETP market performing?

Hong Kong’s ETP market grew to a record market capitalisation of HK$463 billion in 2024. Building on this momentum, average daily turnover of ETPs in the first two months of 2025 reached HK$36 billion, up 89 per cent from a year earlier.

7. Which ETPs are listed in Hong Kong?

A total of 194 ETPs were listed in Hong Kong at the end of 2024. You may find full details here.

HKEX Welcomes Asia’s First Single Stock L&I Products

HKEX to Digitalise ETP Servicing Capabilities with Online Platform

HKEX in 2024: Year in Review

Expansion of Eligible ETFs on Stock Connect to Take Effect on 22 July