A-share ETF investors to face higher tracking error due to SFC collateral rule change
A new rule from the securities regulator, effective September 12, means some Hong Kong-listed A-share ETFs will have to fully collateralise counterparty risk exposure from their P-note issuers. The move could cause existing investors to rethink their allocation options amid concerns of increased tracking error
Investors in offshore China A-share exchange-traded funds (ETFs) may soon face higher levels of tracking error as ETF fund managers and participating dealers move to top up collateral backing these synthetic ETFs to 100% of the fund's exposure facing these counterparties.
The new rule being introduced in Hong Kong on September 12 could potentially cause institutional investors to rethink whether or not risk management models used by some of these ETF managers are worth their cost.
A key
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