The U.S. Securities and Exchange Commission has issued formal notices blocking several filings for 3x and 5x leveraged crypto ETFs, arguing that these products attempt to bypass strict value-at-risk rules.
According to Bloomberg analyst Eric Balchunas, regulators flagged the filings for exploiting a perceived loophole that would allow funds to exceed risk limits set under Rule 18f-4.
Under this rule, funds using derivatives must cap their value-at-risk at 200% of their benchmark and maintain a documented risk management program. The SEC warned that allowing leverage greater than 2x could cause frequent termination events and heighten market instability.
The notices specifically mention filings from Direxion, which sought leveraged exposure to crypto assets and high-beta stocks. The SEC’s move also affects leveraged single-stock and sector-based ETF proposals.
The development comes just as SEC Chair Paul Atkins signalled new rulemaking for innovation exemptions next month. Earlier, the agency’s investment management division noted a surge in 3x and 5x ETF filings, prompting tighter scrutiny.
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