U.S. SEC Blocks Launch of High-Leverage ETFs From Major Issuers
According to the SEC, ETF proposals exceeding 200% leverage breach regulatory limits under the 1940 Investment Company Act and pose heightened investor risk.
The U.S. Securities and Exchange Commission has issued warning letters to Direxion, ProShares, and Tidal, instructing them to suspend applications for exchange-traded funds with leverage above 200%. Citing the 1940 Investment Company Act, the SEC emphasized that a fund’s risk exposure must not exceed twice the value of its reference portfolio. The regulator’s directive extends its oversight on high-leverage products previously targeting ETFs offering triple to quintuple daily returns. Issuers are required to revise their strategies or withdraw their applications to comply with regulatory limits.
- ETF (Exchange-Traded Fund): A publicly traded investment vehicle that holds a basket of assets and can be bought or sold like a stock.
- Leverage: Using borrowed funds or financial derivatives to amplify returns, which also increases potential risks.
- 1940 Investment Company Act: A U.S. federal law governing securities investment companies, setting limits on risk exposure and operational requirements for funds.