SEC Halts High-Risk ETF Plans as Regulators Target Extreme Leverage
The SEC issued warning letters to halt plans for 3x to 5x leveraged ETFs targeting stocks and crypto, citing Rule 18f-4 limits.Summary
The U.S. Securities and Exchange Commission (SEC) sent warning letters on December 3, 2025, to nine major ETF providers, effectively stopping the launch of new funds offering three to five times daily exposure to volatile assets like Bitcoin, Ethereum, Tesla, and Nvidia. This action stems from a surge in applications following the 2024 election, where firms hoped for a more favorable regulatory environment. The SEC cited violations of Rule 18f-4 under the Investment Company Act of 1940, which caps fund exposure at 200% of their value-at-risk, generally limiting leverage to 2x daily movement. Analysts suggest some firms attempted to exploit loopholes in the rule's language regarding 'reference assets.' The regulatory move follows a major crypto market crash in October that resulted in $20 billion in leveraged liquidations, highlighting systemic risks. ETF providers must now revise their strategies to comply with the 2x limit or withdraw their filings, as the SEC signals an urgent focus on risk management for leveraged products.
(Source：Brave New Coin)