SFC Fund Liquidity Risk Management Circular 2026: Swing Pricing, Gates and Disclosure for Hong Kong Fund Managers
The SFC’s supplemental circular of 28 October 2026 sets out how managers of SFC-authorised funds should match redemption terms to asset liquidity, use anti-dilution tools such as swing pricing, govern gates and suspensions, report activations of gates and similar tools to the SFC and disclose all of this. Managers should implement it no later than 31 October 2027.
Two invented SFC-authorised open-ended funds. How does the circular read on each?
| Fund | Position | What the circular points to |
|---|---|---|
| Harbour Credit Fund, HK$2,000 million, daily dealing (investors can redeem every day) | HK$1,200 million in less liquid bonds, which is 60% | More than 50% is likely to count as investing mainly in less liquid assets. A daily-dealing fund like this should implement and use anti-dilution tools (paragraph 10(b)) |
| Ridge Private Credit Fund, HK$500 million | HK$175 million in illiquid assets, which is 35% | More than 30% is likely to count as a significant proportion. The fund should redeem less often than daily and/or require suitable notice or settlement periods (paragraph 10(c)) |
What is the framework behind the circular?
The SFC’s Code on Unit Trusts and Mutual Funds (the UT Code) governs authorised funds. A revised UT Code is effective from 1 November 2026. Under it a manager should use a broad range of liquidity management tools (paragraph 5.10(f)), keep a fund’s assets consistent with its dealing terms (5.10(g)) and give investors enough information (5.10(h)). The circular adds detail and supplements the SFC’s circular of 4 July 2016. Its stated purpose is to align with the latest international standards: the Financial Stability Board’s revised recommendations (December 2023) and the International Organization of Securities Commissions’ (IOSCO) revised recommendations and guidance (May 2025), which followed the pandemic-induced market stresses of 2020.
Open-ended fund (OEF)
A fund whose investors can redeem under its dealing terms. The circular applies to all SFC-authorised OEFs.
Redemption terms
The dealing frequency, notice period, lock-up period, settlement period and any redemption caps (footnote 6).
Anti-dilution tool (ADT)
A tool that adjusts the fund’s net asset value (NAV) or the final price so that investors who transact bear the estimated cost of their liquidity. Swing pricing is one: it adjusts the NAV by a swing factor that reflects the estimated liquidity cost of that day’s net subscriptions or redemptions.
Quantitative-based tool
A tool that limits the liquidity available to redeeming investors, such as a suspension, a redemption gate (a partial, temporary limit on redemptions, usually pro rata) or a longer notice or settlement period.
What does the circular ask of managers?
BEFORE
The 2016 Circular set principles for managers to comply with, with examples of good practice that are not binding.
NOW
The new circular adds enhanced guidance, read with the 2016 Circular. Managers are expected to comply with it.
- Product design (paragraphs 10 to 14). Redemption terms should rest on asset liquidity in normal and stressed markets. Classify assets as liquid, less liquid or illiquid; consider stress tests, the investor base, redemption history, and margin and collateral calls.
- Anti-dilution tools (18 to 23). Pass a fair and reasonable liquidity cost to transacting investors, with a pro-rata approach as the starting point. Cost covers explicit costs, bid-ask spread and, on a best-effort basis, significant market impact. Activation thresholds should be prudent and reviewed regularly.
- Quantitative tools and other measures (24 to 30). Generally meant for exceptional circumstances, such as market dislocation or prolonged exchange closure.
- Disclosure (31 to 32). Offering documents set out the redemption terms, the process, the tools and when they may be used, and the approach in stress.
Managers should not rely only on quantitative tools (footnote 13), and using them does not relieve a manager of the duty to make all reasonable effort to meet redemption requests in an orderly way (footnote 18). Exchange-traded funds (ETFs) and money market funds are expected to reach equivalent outcomes (paragraph 6).
What happens when a gate or suspension is switched on?
-
Governance decidespara 25
A clear framework, including escalation to senior management, covers activation, implementation, review and deactivation.
-
Report to the SFC immediatelypara 27
This applies to quantitative tools and other measures, except borrowing and credit facilities. The circular says managers “should” report.
-
Review and restorepara 29
Assess continued use regularly and take all reasonable steps to restore normal operations once conditions have materially improved.
-
Update investorspara 30
If a tool stays in place for a prolonged period, give periodic updates on why and, where practicable, when it may end.
The appendix describes each tool: swing pricing, subscription and redemption fees, anti-dilution levy, dual pricing; suspension, redemption gates, longer notice or settlement periods; in-kind redemptions, side pockets, soft closures and short-term borrowing.
How much should the offering document reveal?
The tools, their objectives and circumstances of use, including any activation thresholds. Footnote 19 adds that disclosure should avoid precise thresholds or real-time tool-usage data where that may weaken the tools. If a normal range of swing factor is disclosed, it should also say that the range may be exceeded when liquidity costs rise, with illustrative examples (footnote 20).
Who is affected, and what to do first?
Managers of authorised OEFs
Test each fund against the 50% and 30% markers. List each fund’s tools and who may switch them on.
ETF and money market fund managers
Show how structure and practice reach equivalent outcomes.
Existing funds
FAQ 4: submit declaration forms by 31 October 2027, with complex or non-complex class, risk methodology, available tools and the share of less liquid and illiquid assets.
New funds
The revised UT Code and key facts statement templates apply at once to funds applying on or after 1 November 2026 (FAQ 1).
Legal basis
- Instrument
- SFC circular, Investment Products Division, 28 October 2026 (e-Distribution ref. 26EC67), with its Appendix
- Read with
- Revised Code on Unit Trusts and Mutual Funds (effective 1 November 2026), paragraphs 5.10(f), (g), (h) as cited in the circular; SFC circular on liquidity risk management of 4 July 2016 (ref. 16EC29)
- Implementation
- SFC FAQs on the revised UT Code, first published 28 October 2026
Key facts
| Authority | Securities and Futures Commission (SFC), Investment Products Division |
|---|---|
| Instrument | Supplemental circular to management companies of SFC-authorised funds on liquidity risk management, with Appendix |
| Reference | 26EC67 (SFC e-Distribution) |
| Issue date | 28 October 2026 |
| Implement by | As soon as practicable, no later than 31 October 2027 |
| Applies to | SFC-authorised open-ended funds; ETFs and money market funds expected to reach equivalent outcomes |
| Report to SFC | Immediately on activating quantitative tools and other measures, except borrowing and credit facilities |
| Last verified | 5 November 2026, against the SFC circular, appendix, FAQ and 2016 circular. The revised UT Code text itself was not opened; its paragraph numbers are as the circular cites them |
Frequently asked questions
Which funds does the circular cover?
All SFC-authorised open-ended funds generally; ETFs and money market funds are expected to achieve equivalent outcomes (paragraph 6).
Do managers have to report every use of a liquidity tool to the SFC?
Not every tool. The circular says managers should immediately report when quantitative-based tools and other liquidity management measures are activated, except borrowing and credit facilities (paragraph 27).
By when must an existing fund comply?
Managers should enhance policies and procedures as soon as practicable and no later than 31 October 2027, the end of the 12-month transitional period from the effective date of the revised UT Code (paragraph 33). Existing funds also submit declaration forms by that date (FAQ 4).
Does the circular fix a percentage of less liquid or illiquid assets that triggers rules?
It gives markers, not hard limits: more than 50% in less liquid assets is likely to be “mainly” less liquid, and more than 30% in illiquid assets is likely to be a “significant proportion” (footnotes 7 and 8).
Sources (official)
- SFC Supplemental circular to management companies of SFC-authorised funds on liquidity risk management, 28 October 2026 (ref. 26EC67) https://apps.sfc.hk/edistributionWeb/api/circular/openFile?lang=EN&refNo=26EC67
- Appendix to the same circular: Examples of LMTs and measures https://apps.sfc.hk/edistributionWeb/api/circular/openAppendix?refNo=26EC67&lang=EN&appendix=0
- SFC Frequently Asked Questions on the Implementation and Transitional Arrangements of the Code on Unit Trusts and Mutual Funds (Effective on 1 November 2026) https://www.sfc.hk/en/faqs/Publicly-offered-investment-products/Implementation-and-Transition-Arrangements-of-the-Code
- SFC Circular to management companies of SFC-authorized funds on liquidity risk management, 4 July 2016 (ref. 16EC29) https://apps.sfc.hk/edistributionWeb/api/circular/list-content/circular/doc?refNo=16EC29&lang=EN
Want to track Hong Kong capital market changes as they are issued? Book a demo.