SEC Warns Issuers to Halt 5x Leveraged ETFs Targeting Strategy Inc
SEC’s Division of Investment Management held a group call advising issuers against launching new ETFs offering 5x daily returns, citing concerns under Rule 18f-4’s leverage limits. Proposed filings included funds targeting Bitcoin, Ethereum, Tesla, Solana and Strategy Inc equity, which regulators say may fail required risk safeguards.
1. SEC Cautions on 5x Leverage
The SEC’s Division of Investment Management convened an investor call to advise ETF issuers not to proceed with proposed funds offering 5x daily index returns, emphasizing that these aggressive structures may breach the commission’s risk management thresholds.
2. Rule 18f-4 Safeguards Under Review
Rule 18f-4 limits the use of derivatives and leverage for registered funds, requiring stringent risk controls. Regulators flagged that next-generation 5x products have not demonstrated compliance with asset cover and stress-testing requirements.
3. Proposed ETFs and Impacted Assets
Filings for 5x leveraged ETFs included exposures to Bitcoin, Ethereum, Tesla, Solana and Strategy Inc equity. Analysts note that past leveraged funds have experienced high closure rates and steep losses when asset volatility spikes.