The US Securities and Exchange Commission has taken a firm stance against certain leveraged ETF applications by sending formal warning letters. The agency halted consideration of funds designed to deliver greater than 200% exposure.
Prominent ETF providers like Direxion, ProShares, and Tidal were among those notified. Their proposals were found in potential violation of provisions within the Investment Company Act of 1940.
Regulations cap a fund’s exposure relative to the value-at-risk of an unleveraged reference portfolio. The SEC emphasized that this reference portfolio is the baseline for determining compliance with leverage risk rules.
The commission mandated that issuers must first bring their proposed leverage down to compliant levels. This development cools ambitions for launching aggressively leveraged cryptocurrency ETFs in the US, disrupting plans for products with substantial multipliers.
