SEC Halts Filings of Highly Leveraged ETFs

Core Viewpoint - The SEC has halted the review of new leveraged ETFs that provide more than 2x exposure to underlying securities, marking a significant regulatory intervention after a period of deregulatory actions [2][3]. Group 1: SEC Actions - The SEC sent warning letters to nine issuers, including Direxion, GraniteShares, and ProShares, requesting them to revise their strategies or withdraw their applications for leveraged ETFs exceeding 2x exposure [2]. - This action introduces the first regulatory hurdle for new product launches in months, following a series of proposals for 3x and even 5x leveraged strategies from various issuers [2][3]. Group 2: Market Context - The SEC's decision comes amid a surge in proposals for leveraged products, particularly those targeting volatile stocks like Nvidia, Coinbase Global, and Tesla, which have faced scrutiny under the agency's existing framework [3]. - Despite the growing interest in leveraged products, their performance has been inconsistent, with some ETFs experiencing significant losses [4]. Group 3: Performance of Leveraged ETFs - The ProShares UltraPro QQQ ETF (TQQQ), the largest leveraged ETF, has gained 40% this year, while others like the Defiance Daily Target 2X Long MSTR ETF (MSTX) and GraniteShares 2x Long COIN Daily ETF (CONL) have seen declines of 88% and 40%, respectively [5].