SEC uncertain on approval of 3x and 5x leveraged ETF filings

The US Securities and Exchange Commission has indicated that it is unclear whether recent filings for 3x and 5x leveraged equity-linked ETFs would satisfy the Derivatives Rule (Rule 18f-4), which generally limits leverage to 2x. The comments follow a surge in registration statements received during the government shutdown, which has constrained staff capacity.

ETF issuer Volatility Shares filed for 27 new leveraged products, including what would be the first 5x ETF in the US market. Analysts and asset managers have expressed concerns over the risks that high leverage poses to retail investors and the stability of leveraged fund structures, citing a history of closures and near-total value losses among existing single-stock leveraged ETFs.

Industry observers note that leveraged ETFs can amplify market movements and trigger forced liquidations in a downturn, potentially exacerbating volatility. A JPMorgan analysis estimated that leveraged fund selling contributed to a downward spiral in equity markets following President Trump’s trade announcements.

The SEC’s limited staffing during the shutdown has delayed review timelines, leaving applicants uncertain about the regulatory outlook for high-leverage products until normal operations resume. Market participants await guidance on compliance expectations for multi-times leveraged fund structures.