SEC Halts High-Leveraged ETF Plans in Warning Over Risks

Core Viewpoint - The US Securities and Exchange Commission (SEC) has issued warning letters to major providers of leveraged exchange-traded funds (ETFs), effectively halting the introduction of products that aim to deliver returns exceeding 200% of daily performance for various assets [1][2][3]. Group 1: SEC's Actions - The SEC sent nine nearly identical letters to firms such as Direxion, ProShares, and Tidal, stating that it will not review proposed launches until significant issues are resolved [2]. - The SEC's primary concern is that the risk exposures of these funds may surpass the regulatory limits on risk relative to their assets [2][5]. - Fund managers are directed to either revise their investment strategies or formally withdraw their applications in response to the SEC's concerns [2]. Group 2: Nature of the Funds - The funds under scrutiny are characterized by high leverage, daily trading resets, and exposure to volatile assets, including single stocks and cryptocurrencies [4]. - Some funds, such as those proposed by Volatility Shares, aimed to launch ETFs with five times leverage targeting highly volatile assets like Tesla and Bitcoin [5]. - Currently, no 5x or even 3x single-stock ETFs exist in the US due to SEC regulations that have historically limited such exposure to a maximum of 2x leverage [5].