SEC says 'unclear' if proposed 3x and 5x leveraged ETFs would be approved

Core Insights - The U.S. Securities and Exchange Commission (SEC) is uncertain about the approval of numerous recent filings by asset managers for highly leveraged ETFs, particularly those seeking to offer 3x and 5x leveraged exposure [1][2] - The SEC's ability to review these filings is limited due to the ongoing government shutdown, which has resulted in reduced staffing [3][4] ETF Filings and Regulations - Volatility Shares has filed to launch 27 highly leveraged ETFs, including the first proposed 5x ETF for the U.S. market, raising concerns about compliance with the Derivatives Rule, which generally limits leverage to 2x [2][3] - The SEC has previously only approved single-stock leveraged ETFs with a maximum leverage of 2x, making the proposed 5x ETF a significant deviation [3] Market Impact and Investor Caution - The concentration of investor assets in leveraged ETFs has led to market caution, particularly highlighted by a recent selloff following escalated trade tensions [5] - Historical data indicates that over half of leveraged ETFs launched more than three years ago have closed, with 17% losing over 98% of their value, emphasizing the risks associated with these investment vehicles [6] Selling Pressure from Leveraged ETFs - A report from JPMorgan estimated that approximately $26 billion in selling from leveraged ETFs contributed to market declines, indicating the potential for significant market impact from these products [6]