SEC issues fresh warning letters to ETF issuers

Core Insights - The SEC has issued warning letters to several ETF providers, freezing applications for leveraged crypto ETFs that offer more than 200% exposure to underlying assets [1][2][6] - Vanguard Group's recent policy shift to allow ETFs and mutual funds holding cryptocurrencies has been overshadowed by the SEC's warning, reversing the positive sentiment in the crypto community [1][3] Group 1: SEC Warnings and Compliance - Nine ETF providers, including Direxion and ProShares, received notices from the SEC on December 2, highlighting compliance requirements under the Investment Company Act of 1940 [2][6] - The SEC's letters emphasize that funds seeking leverage must adhere to Rule 18f-4, which limits a fund's Value-at-Risk (VaR) to no more than 200% of a designated reference portfolio [6][8] - The regulator reiterated that any fund tracking a leveraged or inverse multiple of an unleveraged index must use that index as its reference portfolio for VaR calculations [7] Group 2: Market Activity and Institutional Adoption - The SEC's clampdown coincided with a significant week of institutional activity, as Vanguard Group announced it would allow trading of ETFs and mutual funds that primarily hold cryptocurrencies [3][4] - Following Vanguard's announcement, there was a surge in demand for crypto-related products, indicating strong institutional interest [4] - Bank of America advised wealth-management clients to allocate 1% to 4% of their portfolios to digital assets, marking a notable endorsement of the sector [4]