The SFC Code on Unit Trusts and Mutual Funds (UT Code)
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The UT Code sets the terms on which the Securities and Futures Commission (SFC) authorises a unit trust or mutual fund corporation for sale to the Hong Kong public. It covers the trustee or custodian, the management company, offering documents, the core investment limits, dealing and pricing, and post-authorisation changes and reporting. Authorisation itself is granted under section 104 of the Securities and Futures Ordinance (SFO). Explanatory note (e) on page 2 states that the Code does not have the force of law.
Scope and the core mechanism
The Code applies to schemes seeking SFC authorisation. Paragraph 1.1 expects them to comply with the applicable provisions, and an applicant seeking a waiver must give detailed reasons. Under paragraph 1.2, the SFC recognises listed types of scheme in listed jurisdictions. For a scheme already authorised there, the SFC generally starts from the view that structure, operations and core investment limits already comply in substance. The SFC still reserves the right to require full compliance as a condition of authorisation.
A unit trust appoints a trustee and a mutual fund corporation appoints a custodian (4.1). Every scheme also appoints a management company acceptable to the SFC (5.1). The two must be independent of each other. Group companies are deemed independent only if neither is the other's subsidiary, no director sits on both boards, and both sign an undertaking (4.7 and 4.8). Where the manager is neither incorporated in Hong Kong nor has a place of business there, the scheme must appoint a Hong Kong Representative (9.1).
Chapter 7 sets the core investment limits for every scheme. Chapter 8 then adjusts them for specialised schemes. These are money market funds (8.2), index funds and ETFs (8.6), hedge funds (8.7) and structured funds. Funds that invest extensively in derivatives (8.9), active ETFs (8.10) and closed-ended funds (8.11) also have their own rules.
Key provisions
| Provision | What it says | The practical point |
|---|---|---|
| Trustee/custodian eligibility (4.2 to 4.4) | Eligible: a prudentially supervised overseas bank. Also eligible: a trustee authorised and supervised by an overseas authority the SFC accepts. A Type 13 depositary under Part V of the SFO also qualifies. Capital test: HK$10 million of paid-up share capital and non-distributable capital reserves. | A lower figure is allowed only for a wholly-owned subsidiary of a substantial financial institution that gives a standing capital commitment or a no-default undertaking. The test does not apply to a Type 13 depositary. |
| Management company (5.2, 5.5) | Primarily a fund manager, with HK$10 million of paid-up share capital and non-distributable capital reserves and a positive net asset position. Key personnel need at least five years' investment experience in managing public funds. | Notes to 5.5 normally expect at least two key personnel each for the manager and any investment delegate. |
| Product KFS (6.2A) | Every authorised scheme issues a Product Key Facts Statement, deemed part of the offering document. | The SFC may, exceptionally, let a foreign scheme keep the KFS separate where home-country law requires it (Note 1). Otherwise an error in the KFS is an offering-document error. |
| Dealing and redemption (6.13, 6.14) | At least one regular dealing day a month, except for closed-ended funds under 8.11. Redemption money must be paid within one calendar month of a properly documented request. | Dealing is at a forward price. The one-month limit stretches only where market rules, such as currency controls, prevent payment. |
| Performance fees (6.17) | Payable at most annually. It is due only on a high-on-high basis, or on net outperformance of a benchmark or asset class (Note 1). | The offering document must say whether the fund equalises performance fees, and how investors are affected if it does not. |
| Spread limits (7.1, 7.1A, 7.1B to 7.3) | Limits: 10% of NAV per single entity and 20% per group. Deposits with one group are capped at 20%. A fund may hold at most 10% of an issuer's ordinary shares. It may put 15% of NAV in instruments that are not listed, quoted or dealt in on a market. | The entity and group limits count securities, derivative underlyings and net OTC counterparty exposure together. Cash may exceed the 20% deposit limit at launch, before a merger or termination, and pending investment or payment (7.1B Note 2). |
| Government securities (7.4, 7.5) | Up to 30% of NAV in one issue. A scheme may hold all its assets in such securities if spread over at least six issues. | Securities from the same issuer count as different issues when their terms differ, for example by maturity or coupon. |
| Borrowing and derivatives (7.21, 7.26, 7.33) | Borrowing is capped at 10% of NAV, excluding back-to-back loans and compliant securities lending and repo transactions. Net derivative exposure for investment purposes is capped at 50% of NAV. Securities financing must be at least 100% collateralised. | Hedging positions fall outside the 50% limit only if they leave no residual derivative exposure. |
| Fund names (7.42) | A name that points to an objective, strategy, region or market requires at least 70% of NAV invested to match, under normal market conditions. | Up to 30% of NAV may sit outside the named focus. |
| Pricing errors (10.2A, 10.2B) | An error of 0.5% or more of NAV per unit must be reported to the trustee/custodian and the SFC immediately. Investors whose loss exceeds HK$100 are compensated, and any loss to the scheme is compensated, unless the trustee/custodian decides otherwise with justification to the SFC. | Recurring or simultaneous smaller errors that reach 0.5% in aggregate are also reportable. |
| Suspension and deferral (10.6 to 10.8) | Suspension needs consultation with the trustee/custodian and immediate notice to the SFC. Redemptions above 10% of NAV on a dealing day may be deferred to the next one. | A suspension is published immediately and at least monthly while it lasts. Another deferral threshold needs SFC acceptance and disclosure. |
| Scheme changes and reports (11.1, 11.1B, 11.6) | Changes of operators, material changes to objectives or dealing, and new or higher fees need prior SFC approval. A fee rise within the disclosed maximum needs one month's notice to holders instead (11.1A Note 3). Annual reports are due within four months of year end, interim reports within two months. | A revised offering document for a change that needs no approval is filed within one week of issue, with a mark-up. |
Amendment history
| Date | Instrument | What changed |
|---|---|---|
| 1 Dec 1997 to 25 Jun 2010 | Earlier versions | Four versions. They took effect on 1 December 1997, 1 April 2003, 1 August 2008 and 25 June 2010. |
| 1 Jan 2019 | UT Code, January 2019 version | Most chapters, including Chapter 7, still carry the January 2019 date. |
| 2 Oct 2024 | Current version | Revised pages are dated October 2024. They include Chapter 4, which names a Type 13 depositary as an eligible trustee/custodian. |
What it works with
The UT Code is Section II of the SFC Handbook. The SFO supplies the powers: section 104 to authorise a scheme and section 105 to authorise its advertisements and offering documents. A Hong Kong corporate fund can take the form of an open-ended fund company. The SFO provides for registration of an OFC (section 112D) and authorisation of a public one (section 104). The OFC Code and this Code then set the requirements, as the SFC's OFC page explains. Listed property trusts follow the separate REIT Code (summary). Paragraph 7.14 bars a UT Code scheme from holding real estate directly.
A regional comparator is Singapore's MAS Code on Collective Investment Schemes (summary), issued under the Securities and Futures Act. The UCITS Directive spread rules differ in structure. Article 52 starts at 5% per issuer and allows up to 10% only while holdings above 5% total no more than 40%. That matters for a UCITS seeking Hong Kong retail distribution under paragraph 1.2.
In practice: the 0.5% pricing-error threshold in 10.2A is measured per incident and in aggregate. One way to apply this is a NAV error log that adds up small errors that recur. The report to the trustee/custodian and the SFC is due as soon as the total reaches 0.5%.
To verify
- Scope of the 2024 revision: which paragraphs changed on 2 October 2024 beyond Chapter 4, per the SFC consultation conclusions on the codes page.
- Type 13 commencement: the date the Type 13 depositary regime under Part V of the SFO came into operation, and any transition for existing trustees.
- Recognised jurisdictions: the current list of recognised jurisdiction schemes referred to in paragraph 1.2, published on the SFC website.
- Net derivative exposure method: the current SFC guidance on calculating net derivative exposure, which Note (2) to 7.26 says may be updated.
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