The US Securities and Exchange Commission asked leveraged-ETF issuers not to move forward with a new wave of planned funds, using a rare group call Monday to renew its push against increasingly aggressive fund structures.
The agency’s Division of Investment Management made the ask during a brief call with independent trustees and fund counsel, according to six people familiar with the matter. The call lasted only a few minutes with no question-and-answer session, participants said. The message, they said, was to relay to issuers that they shouldn’t go effective — the step that activates a fund’s registration and clears it to launch — with their proposed products.
At stake is whether a new generation of ETFs — some designed to deliver as much as five times the daily return of an underlying index, for instance — comply with regulatory limits governing fund risk relative to assets.
Issuers’ proposed products would need to meet the requirements of Rule 18f-4, the SEC’s derivatives risk-management rule. Regulators, for now, remain unconvinced.
Leveraged ETFs use derivatives to multiply the daily return of an underlying asset, meaning gains and losses are amplified equally — and because the leverage resets daily, returns over longer periods can diverge sharply from the multiple implied by the fund’s name. Once a niche tool for professional traders, the products have become increasingly popular with retail investors, who are drawn by the prospect of outsized gains in volatile markets.
The SEC declined to comment.
Rule 18f-4, adopted in 2020, was designed to modernize how funds manage derivatives risk by requiring them to limit value-at-risk relative to a reference benchmark.
More than 450 leveraged and inverse single-security ETFs have launched in the US since 2022, when the first single-stock funds debuted, according to data compiled by Athanasios Psarofagis at Bloomberg Intelligence. Assets in the category have grown to roughly $150 billion, which includes index-based leveraged funds launched prior to 2022. No 5x — or even 3x — single-stock ETF currently exists in the US.
Rare Pushback
The resistance is especially unusual against the backdrop of a more accommodating regulatory tone from the Trump administration. The episode also underscores the delicate balancing act facing governing agencies as they weigh a surge of increasingly provocative product proposals against the need to safeguard market credibility and uphold regulatory guardrails.
The current scrutiny can be traced back to October, when Volatility Shares filed to launch ETFs targeting five times the daily return of some of the market’s most volatile assets.
Several firms followed with similar filings. The SEC issued warning letters in December cautioning against increasingly complex leveraged ETF structures. This year, however, another wave of applications has landed from firms including Leverage Shares, GraniteShares, Direxion, ProShares and Roundhill Investments. It wasn’t immediately clear which issuers or representatives attended Monday’s call.
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