SEC issues warning letters to nine ETF providers; products with over 2x leverage may face strict regulation

According to Reuters, the U.S. Securities and Exchange Commission (SEC) recently issued warning letters to nine exchange-traded fund (ETF) providers, directly halting their applications to offer new funds (ETFs) with leverage exceeding 2x.

The letters targeted a range of highly leveraged ETFs aiming to provide 3x or even 5x daily returns. The underlying assets include not only highly volatile single stocks such as Tesla and Nvidia, but also cryptocurrencies like Bitcoin and Ethereum.

In the letters, the SEC expressed concerns about funds seeking to offer more than 200% (2x) leverage exposure and instructed issuers to pause progress until key issues are resolved.

The regulatory basis centers on Rule 18f-4 under the Investment Company Act, which limits a fund’s risk exposure to 200% of the risk value of its “reference portfolio.” Some issuers have attempted to find workarounds by redefining “reference assets” to bypass this leverage limit.

This rare and forceful move highlights the SEC’s regulatory concerns amid a generally relaxed fund approval environment. The core aim is to protect retail investors and control systemic risk.

The flash crash in the cryptocurrency market this October triggered nearly $20 billion in single-day liquidations, fully exposing the chain reaction risks of extreme leverage under market stress. The SEC’s warning letters underscore its urgent concern about these risks.

Facing regulatory pressure, issuers now must either modify their investment strategies to comply with the 2x leverage limit or formally withdraw their applications. This move marks an unusual pause in the relatively permissive U.S. fund approval environment.

This incident clearly demonstrates that, regardless of market demand for high-yield products, 2x leverage has become an unbreakable regulatory red line in the U.S. ETF market. In the short term, there will be no higher-leverage crypto or single-stock ETF products.

#SEC监管 #ETF