The U.S. Securities and Exchange Commission (SEC) has voiced doubts about approving the latest wave of highly leveraged ETF filings, including proposals for 3x and 5x single-stock ETFs, raising concerns about investor protection as volatility returns to global markets.
🔍 Regulatory Concerns
SEC Investment Management Director Brian Daly told Reuters that it remains “unclear whether these ETFs would comply with Rule 18f-4”, the Derivatives Rule that caps leverage at 2x.
Since the U.S. government shutdown, the SEC has received dozens of new ETF filings, including 27 proposals from Volatility Shares — among them, the first-ever 5x ETF for the U.S. market.
💣 Market Risks Amplified
While leveraged ETFs are designed to magnify returns, they equally amplify downside risk.
- More than half of leveraged ETFs launched over the past three years have closed, and 17% have lost over 98% of their value, according to Morningstar’s Bryan Armour.
- JPMorgan estimated that $26 billion in leveraged ETF selling deepened last week’s U.S. market selloff following renewed U.S.–China trade tensions.
🏦 Industry & Oversight Under Strain
With the SEC operating under limited staff during the shutdown, reviews of new filings are on hold.
Still, the regulator continues to monitor applications “potentially problematic for retail investors,” said Amrita Nandakumar, President of Vident Asset Management.
📈 Investor Behavior
Demand for ultra-leveraged exposure remains strong as traders seek amplified bets on AI, tech, and crypto-linked equities.
However, analysts warn that the rush toward 5x products could push markets beyond safe leverage limits — testing both market structure and investor discipline.
“This SEC administration has been more open to innovation,” Armour said, “but 5x single-stock ETFs will test those limits.”