SEC sends warning letters to ETF issuers targeting untamed leverage

The U.S. Securities and Exchange Commission (SEC) sent warning letters to ETF providers like Direxion, ProShares, and Tidal, halting applications for leveraged ETFs proposing 3-5 times exposure to the underlying asset. The SEC cited the Investment Company Act of 1940, which caps fund exposure at 200% of their value-at-risk relative to a reference portfolio. Issuers were directed to reduce leverage to comply with existing regulations before applications could proceed, effectively dampening prospects for 3-5x crypto leveraged ETFs in the US. This swift action follows a severe October flash crash that caused $20 billion in leveraged liquidations, highlighting concerns over excessive leverage in the crypto market, where liquidations have nearly tripled this cycle.

(Source：Cointelegraph)