Why U.S. Regulators Blocked the Launch of 5× Leveraged ETFs

 1. A Major Decision That Shocked the ETF Market

In early December, U.S. regulators made a decision that quickly gained global attention: the Securities and Exchange Commission (SEC) denied approval for a new group of 3× and 5× leveraged ETFs. Several well-known issuers—including Direxion, ProShares, Tidal Financial, and Volatility Shares—had submitted filings in October, hoping to bring high-leverage products tied to major technology stocks and leading cryptocurrencies to the U.S. market.

The SEC’s response was firm. In its notice, the agency stated that it has “significant concerns regarding ETFs that offer more than 200% leveraged exposure” to their underlying securities or indexes. This message signaled a clear red line for the industry.

2. What Leveraged ETF Issuers Were Trying to Launch

The proposed ETFs targeted some of the market’s most volatile and widely traded assets. Issuers planned to offer 3× and 5× daily return products based on:

  • Tesla, Nvidia, AMD, and Palantir

  • Bitcoin, Ethereum, Ripple, Solana

These funds would aim to multiply the daily price movement—up or down—by as much as five times. However, with greater potential return comes dramatically greater risk.

3. Why the SEC Refuses to Allow More Than 2× Leverage

In the United States, single-stock leveraged ETFs are capped at 2× exposure. While older 3× index ETFs such as TQQQ or SOXL still exist, they are essentially “grandfathered in,” having been introduced before modern derivatives regulations were created.

Today, ETFs are governed by Rule 18f-4, introduced in 2022, which restricts a fund’s value-at-risk (VaR) to 200% of its net assets. A 5× ETF exceeds that limit by a wide margin. This rule is designed to ensure that derivative-heavy funds do not take on risks that could collapse the product—and potentially harm investors.

Issuers had hoped that the SEC’s recent approval of cryptocurrency ETFs and certain leveraged products indicated a more flexible stance. However, the sweeping rejection of every 3× and 5× filing made it clear that the regulator does not intend to loosen its standards.

4. The Hidden Dangers of 5× Daily Leverage

A 5× leveraged ETF is highly sensitive to market volatility. A 5% move in the underlying asset becomes a 25% move in the ETF. On a volatile trading day, these swings can compound rapidly, making the fund extremely unstable.

In some situations, a sharp market move can even force the ETF to delist within hours. One notable example occurred in October when AMD’s sudden stock surge caused a 3× inverse ETF listed in the U.K. to be delisted after only one trading day. Events like this highlight how leverage magnifies risk far more than many investors expect.

5. Growing Investor Appetite Despite the Risks

Even with the dangers of amplified volatility, investor interest is strong. According to Bloomberg, the global leveraged ETF market has grown to $162 billion, the largest size on record. Many investors—especially in South Korea—actively trade leveraged ETFs tied to tech stocks, semiconductors, and digital assets.

For retail traders hoping for rapid gains, leverage is appealing. However, the SEC’s latest rejection underscores that market demand alone cannot override regulatory safeguards.

6. What This Means for the Future of Leveraged ETFs

The SEC’s decision provides clarity for issuers and investors alike:
any ETF offering more than 200% leverage is unlikely to be approved under current regulations.

While financial markets continue to innovate, the agency remains committed to protecting investors from excessive downside risk. Asset managers may continue to explore creative ETF structures, but ultra-high-leverage products are effectively off the table—for now.

댓글

댓글 쓰기

이 블로그의 인기 게시물

AI Investing: Still in the Early Innings — Why ETFs Are the Smarter Play

  The AI Boom: Stock Market’s Hottest Trend One of the most talked-about themes in today’s stock market is undoubtedly artificial intelligence (AI) . In both U.S. and Korean equity markets, shares of leading AI companies such as NVIDIA and Broadcom continue to hit record highs, capturing the attention of global investors. Market strategists often compare this moment to a baseball game: “If a baseball game has nine innings, we haven’t even finished the third inning yet.” In other words, the AI revolution is still in its early phase. That means investors who want to grow their wealth for the long term cannot afford to ignore AI-related opportunities. The challenge, however, lies in the risks of chasing a handful of high-flying individual stocks. Many of these names are already considered overvalued, and betting everything on a single company leaves portfolios vulnerable to volatility. That’s why analysts are urging investors to consider a more balanced approach: diversification...
자세한 내용 보기

Equity Subscription and Additional Listings Summary

The recent financial announcement from Billions reveals significant developments in the equity market, with various companies preparing for additional listings. Key entities such as Kakao, Park Systems, and others are set to join the trading floor, capitalizing on their growth potential. The landscape is further shaped by strategic moves involving stock option exercises and corporate bonds, paving the way for a dynamic market environment. Equity Subscription Overview In the world of finance, equity subscription plays a pivotal role in raising capital for companies and fostering growth. Companies strategically invite investors to subscribe to new shares, thereby increasing their equity base, with the goal of funding expansion projects and enhancing operational capabilities. The recent announcement from Billions highlights a series of companies that are gearing up for new equity subscriptions. This initiative not only reinforces their commitment to growth but also strengthens their...
자세한 내용 보기

Samsung Electronics Soars Nearly 5%, KOSPI Hits Another Record High — But Construction and Auto Stocks Lag Behind

 On September 22, the KOSPI once again broke its all-time high, closing at 3,468.65 points , thanks to a sharp rally in market heavyweight Samsung Electronics . The stock surged nearly 5%, driving the index higher and extending the September rally. However, the gains were far from broad-based, as construction and auto sectors continued to slump, revealing a growing divide in the Korean stock market. Samsung Electronics Jumps 4.77% on HBM Breakthrough Samsung Electronics closed at ₩83,500 , up 4.77% from the previous day. This marked the largest single-day gain in nearly two months since July 28, when the stock famously reclaimed its “₩70,000 Samsung” status. The surge was triggered by news that Samsung’s HBM3E 12-stack memory chips had passed Nvidia’s quality tests and secured purchase orders. Although Samsung has not officially confirmed the deal, investors interpreted the development as a strong sign of success in the highly competitive high-bandwidth memory (HBM) market. A...
자세한 내용 보기