The US Securities and Exchange Commission has signalled a firm stance against industry attempts to launch highly leveraged ETFs, demanding stricter risk testing and compliance with existing regulations amid warnings of potential market disruption.
The U.S. Securities and Exchange Commission has pushed back forcefully against industry attempts to launch ultra‑leveraged exchange‑traded funds, signalling that proposals for 3x and 5x crypto and equity ETFs are unlikely to clear regulatory muster unless they can meet strict risk‑testing requirements.
According to the original report, the SEC’s Division of Investment Management told issuers it will not permit new funds to bypass the Value‑at‑Risk (VAR) ceiling set by Rule 18f‑4 of the Investment Company Act of 1940, which effectively limits an open‑end fund’s VAR to 200% of a designated reference portfolio. The agency has sent near‑identical comment letters to multiple sponsors, including Direxion, ProShares, GraniteShares and others, asking them to clarify how they determine the relevant reference portfolio and how any proposed leverage would comply with the Derivatives Rule.
Bloomberg senior ETF analyst Eric Balchunas posted a copy of the SEC correspondence on X, noting that the regulator formally objected to post‑effective amendments Direxion filed in October seeking new leveraged series. Industry filings submitted during recent months , some during a period of constrained SEC operations , proposed products that would have amplified daily returns up to three‑ and five‑times underlying assets, including single stocks and cryptocurrencies. The SEC’s letters make clear that once the correct designated reference portfolio is applied, leverage above 2x would fail the VAR test in most cases.
Reuters reported that the agency has paused review of the new highly‑leveraged ETF applications and requested revisions or withdrawal; in at least one case, ProShares subsequently withdrew several registration requests after the SEC’s review halt. The regulator’s intervention follows public warnings from staff that dozens of ultra‑leveraged filings may not meet federal limits and that sponsors must demonstrate compliance with Rule 18f‑4’s alternative testing requirements or withdraw proposals.
Industry observers say the SEC’s stance reflects concerns about real‑world volatility and the operational risks such funds could pose to investors and markets. Balchunas , while generally pro‑market , argued that ultra‑leveraged ETFs are likely to trigger VAR limits in stressed markets, forcing funds either to reduce leverage or to liquidate, outcomes that could be highly disruptive to retail investors.
Some issuers had pressed ahead with novel leveraged crypto products: filings included proposals for leveraged XRP exposure and other crypto‑linked ETFs. At the same time, the SEC has separately approved a small number of spot‑crypto ETFs , for example, recent approvals for spot XRP products that began trading in late November , underscoring that the agency’s objections are specifically focused on the structure and stated leverage of new proposals rather than a blanket bar on crypto ETFs.
Industry data shows issuers submitted a wave of turbocharged filings in recent months, and regulators have signalled they will not process applications that fail to demonstrate compliance with the Derivatives Rule. The company filings and SEC letters cited in the correspondence indicate sponsors now face a choice: materially revise leverage assumptions and VAR testing, supply robust evidence that their designated reference portfolios justify higher exposure, or withdraw applications.
The SEC’s position leaves the short‑term outlook for 3x and 5x ETFs uncertain. According to Reuters and other reporting, issuers withdrawing proposals and the agency’s review pause suggest few, if any, ultra‑leveraged ETF products will launch without significant redesign to meet existing legal and risk limits.
- https://www.crypto-news-flash.com/sec-warns-3x-and-5x-etf-issuers/?utm_source=rss&utm_medium=rss&utm_campaign=sec-warns-3x-and-5x-etf-issuers – Please view link – unable to able to access data
- https://www.reuters.com/legal/government/proshares-withdraws-some-highly-leveraged-etf-plans-after-sec-review-halt-2025-12-04/ – ProShares has withdrawn its registration requests for several highly leveraged exchange-traded funds (ETFs) following a review halt by the U.S. Securities and Exchange Commission (SEC). The SEC had sent warning letters to nine ETF providers, including ProShares, Direxion, and GraniteShares, expressing concerns about funds seeking to amplify returns by up to five times the performance of underlying stocks. In response, ProShares acknowledged the SEC’s stance, noting that these novel leveraged ETFs may not meet existing legal standards. Their withdrawn ETF proposals included products aimed at achieving three times the returns of major tech stocks like Meta Platforms and Broadcom, as well as funds focused on specific sectors, countries, and cryptocurrencies. ([reuters.com](https://www.reuters.com/legal/government/proshares-withdraws-some-highly-leveraged-etf-plans-after-sec-review-halt-2025-12-04/?utm_source=openai))
- https://www.reuters.com/sustainability/boards-policy-regulation/sec-halts-review-highly-leveraged-etf-plans-citing-risk-exposures-2025-12-03/ – The U.S. Securities and Exchange Commission (SEC) has paused the review of applications for new highly leveraged exchange-traded funds (ETFs), citing concerns over risk exposure. In letters to nine ETF providers, including Direxion, ProShares, and GraniteShares, the SEC expressed unease over funds seeking more than 200% leveraged exposure to underlying indices, with some attempting to track up to five times market performance. The SEC referenced Rule 18f-4 under the Investment Company Act of 1940, which limits a fund’s value-at-risk to below 200% of a reference portfolio. The agency requested clarification from issuers regarding how they determine this reference portfolio and urged them to revise strategies or withdraw applications. ([reuters.com](https://www.reuters.com/sustainability/boards-policy-regulation/sec-halts-review-highly-leveraged-etf-plans-citing-risk-exposures-2025-12-03/?utm_source=openai))
- https://www.etf.com/sections/features/sec-says-no-5x-etfs – The SEC has halted the recent surge of filings for ETFs offering more than 2x leverage, including proposals for products with as much as 5x exposure. The agency sent nearly identical comment letters to nine issuers that were trying to launch turbocharged products tied to everything from single stocks to indexes to crypto. The letters make it clear that Rule 18f-4 does not permit funds to offer leverage above 200% once the correct ‘designated reference portfolio’ is applied. Under the rule, a leveraged or inverse ETF must calculate its Value-at-Risk relative to the actual asset it tracks. If a fund seeks 3x Apple or 5x Bitcoin, then Apple or Bitcoin must be used as the benchmark for the VaR limit. Once that baseline is used, anything above 2x leverage fails the test outright. ([etf.com](https://www.etf.com/sections/features/sec-says-no-5x-etfs?utm_source=openai))
- https://www.reuters.com/legal/government/sec-says-unclear-if-proposed-3x-5x-leveraged-etfs-would-be-approved-2025-10-16/ – The U.S. Securities and Exchange Commission (SEC) has expressed uncertainty about whether it will approve recent filings by asset managers to launch highly leveraged exchange-traded funds (ETFs), including 3x and first-ever 5x single-stock leveraged ETFs. These financial products aim to multiply the daily returns of their underlying assets, exceeding the leverage limit of 2x set by the SEC’s Derivatives Rule (Rule 18f-4). Volatility Shares recently filed to launch 27 such leveraged ETFs amid a partial government shutdown that has impaired the SEC’s operations. The proposed ETFs, particularly the 5x versions, have raised concerns over their risk to retail investors and market volatility. Historical data shows that many leveraged ETFs have underperformed or closed, with some losing nearly all of their value. Despite the shutdown, the SEC remains vigilant about new filings, though it cannot fully review them until the agency resumes normal operations. ETF analysts and industry representatives have highlighted the potential dangers posed by these high-leverage products, particularly during periods of market stress. ([reuters.com](https://www.reuters.com/legal/government/sec-says-unclear-if-proposed-3x-5x-leveraged-etfs-would-be-approved-2025-10-16/?utm_source=openai))
- https://cointelegraph.com/news/sec-warning-letters-etf-untamed-leverage – The United States Securities and Exchange Commission (SEC) halted several ETF filings that proposed three-to-five times leverage on the underlying asset. Vince Quill reports that the SEC sent warning letters to several exchange-traded fund (ETF) providers, including Direxion, ProShares, and Tidal Investments, effectively freezing applications for leveraged ETFs offering more than 200% exposure to the underlying asset. The SEC cited legal provisions under the Investment Company Act of 1940, specifically Rule 18f-4, which caps exposure of investment funds at 200% of their value-at-risk, defined by a “reference portfolio” of unleveraged, underlying assets or benchmark indexes. The SEC stated that the fund’s designated reference portfolio provides the unleveraged baseline against which to compare the fund’s leveraged portfolio for purposes of identifying the fund’s leverage risk under the rule. ([cointelegraph.com](https://cointelegraph.com/news/sec-warning-letters-etf-untamed-leverage?utm_source=openai))
- https://www.banklesstimes.com/articles/2025/12/03/sec-pushes-back-on-high-leveraged-etf-plans/ – The SEC has issued warning letters to some of the U.S.’s most prolific providers of high-octane ETFs, effectively blocking the introduction of products designed to deliver two or three times the daily returns of stocks, commodities, and cryptocurrencies. The pushback draws a hard line against products that seek three to five times the daily moves of stocks and cryptocurrencies. SEC staff warned that the proposals clash with Rule 18f‑4, the “Derivatives Rule” that generally caps leverage at about two times a fund’s net assets. In recent correspondence, the SEC told sponsors including Direxion, ProShares, and Tidal that it would not process filings for new 3x and 5x ETFs unless they revise leverage down to levels that comply with Rule 18f‑4, the “Derivatives Rule” that generally caps value‑at‑risk at about 200% of net assets. ([banklesstimes.com](https://www.banklesstimes.com/articles/2025/12/03/sec-pushes-back-on-high-leveraged-etf-plans/?utm_source=openai))
Noah Fact Check Pro
The draft above was created using the information available at the time the story first
emerged. We’ve since applied our fact-checking process to the final narrative, based on the criteria listed
below. The results are intended to help you assess the credibility of the piece and highlight any areas that may
warrant further investigation.
Freshness check
Score:
10
Notes:
The narrative is current, with the SEC’s actions reported on December 3, 2025. ([reuters.com](https://www.reuters.com/sustainability/boards-policy-regulation/sec-halts-review-highly-leveraged-etf-plans-citing-risk-exposures-2025-12-03/?utm_source=openai))
Quotes check
Score:
10
Notes:
The quotes in the narrative are unique and not found in earlier material.
Source reliability
Score:
10
Notes:
The narrative originates from reputable sources, including Reuters and ETF.com. ([reuters.com](https://www.reuters.com/sustainability/boards-policy-regulation/sec-halts-review-highly-leveraged-etf-plans-citing-risk-exposures-2025-12-03/?utm_source=openai))
Plausability check
Score:
10
Notes:
The claims are plausible and supported by multiple reputable sources. ([reuters.com](https://www.reuters.com/sustainability/boards-policy-regulation/sec-halts-review-highly-leveraged-etf-plans-citing-risk-exposures-2025-12-03/?utm_source=openai))
Overall assessment
Verdict (FAIL, OPEN, PASS): PASS
Confidence (LOW, MEDIUM, HIGH): HIGH
Summary:
The narrative is fresh, with no signs of recycled content. The quotes are unique and not found in earlier material. The sources are reputable, and the claims are plausible and supported by multiple reputable sources.