The U.S. Securities and Exchange Commission has issued warning letters to several companies that attempted to launch exchange-traded funds offering extremely high leverage. This action effectively pauses all applications for ETFs seeking 3× to 5× exposure to an underlying asset.
The affected filings came from major ETF issuers, including well-known firms aiming to push leverage beyond what U.S. regulations permit. Current rules limit a fund’s risk exposure to no more than 200% of a benchmark or a comparable unleveraged portfolio.
According to the regulator, these applications must either be corrected or fully withdrawn before any further review can continue. The rapid release of the warning letters on the same day they were issued suggests that the SEC is treating excessive leverage as a matter of urgency.
SEC warning letter sent to Direxion. Source: SEC
This development comes at a time when concerns around extreme leverage—especially in volatile sectors like cryptocurrency—are growing. Earlier in the year, a sudden market crash in the crypto space wiped out billions in leveraged positions in a single day, highlighting the dangers of products that amplify both gains and losses.
Overall, the SEC’s move signals a stronger regulatory stance toward ultra-leveraged ETFs and reflects increased caution around investor risk exposure across the market.
24-hour liquidations in the crypto derivatives market. Source: Coinglass
Source: Cointelegraph Edited by Sonarx