High-Leverage ETF Plans Challenged by SEC Letters

Plans for new leveraged exchange-traded funds have encountered regulatory resistance. The US Securities and Exchange Commission issued warning letters to multiple issuers, pausing applications for products exceeding 200% leverage.

Direxion, ProShares, and Tidal were identified as recipients of these SEC communications. The agency cited specific legal thresholds from the Investment Company Act of 1940.

Under the rule, a fund’s risk is measured against a reference portfolio without leverage, with a hard cap at 200% of that portfolio’s value-at-risk. The SEC stated this comparison is fundamental for identifying excessive leverage risk.

Issuers were told to revise their proposals to lower leverage before the SEC would resume review. This action directly impedes the pathway for highly leveraged crypto ETFs in the US, including those with triple or quintuple leverage.