#What Regulatory Changes is the SEC Proposing for Leveraged ETFs?
The SEC recently requested modifications to several filings for exchange-traded funds, specifically those proposing highly leveraged ratios of 3x and 5x. The intent behind these revisions is to ensure that these funds comply with Rule 18f-4, a regulation that governs how derivatives are utilized by registered investment companies.
Rule 18f-4 mandates that funds implement risk management programs and adhere to established value-at-risk limits when handling leveraged products. This regulation sets clear boundaries on leverage levels, and proposals that exceed these thresholds will be subject to increased scrutiny from regulators.
Among the firms impacted by the SEC’s calls for changes is Direxion, which is well-regarded for its range of leveraged and inverse ETFs. Many of the proposed products from this issuer contain exposure to technology stocks as well as cryptocurrency assets, including Bitcoin and Ethereum.
The recent actions taken by the SEC reflect its ongoing commitment to apply Rule 18f-4 in overseeing the use of derivatives and leverage within ETF structures. As a result, proposals for these highly leveraged funds may need to be modified or withdrawn entirely to align with regulatory compliance standards.
As the landscape of investment continues to evolve, retail investors should stay informed and aware of these developments, as they can significantly influence the availability and risk associated with leveraged ETFs.