SEC warns Direxion, ProShares, and Tidal, stalling new leveraged ETF launches

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ismagilov

The US Securities and Exchange Commission has issued a wave of warning letters to some of the country's top providers of leveraged exchange-traded funds, blocking the rollout of products designed to deliver two- or three-times-daily market returns.

In a set of nine almost identical letters [https://www.sec.gov/Archives/edgar/data/1424958/000000000025011179/filename1.pdf] posted Tuesday, the SEC told firms including Direxion, ProShares and Tidal that it would not move forward with reviewing proposed launches until key issues are addressed.

"We write to express concern regarding the registration of exchange-traded funds that seek to provide more than 200% (2x) leveraged exposure to underlying indices or securities," the letter to Direxion stated.

The regulator is concerned that these funds [https://seekingalpha.com/article/4848913-sdow-benefits-risks-leveraged-etf-watchlist]may be taking on more risk than SEC rules allow.

The letters direct the fund managers to either revise their investment strategies or formally withdraw their applications.

ETF analyst Eric Balchunas commented [https://x.com/EricBalchunas/status/1995957965837508677?s=20] that the SEC’s action is a necessary move, saying, “2x is plenty of heat,” and that more extreme products could cause frequent termination events.

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