Eric Balchunas

Rule Changes

Prominent outside analyst shaping public understanding of ETF leverage rules

In late 2025, staff at the U.S. Securities and Exchange Commission sent nearly identical warning letters to nine ETF issuers, including Direxion and ProShares, effectively freezing a wave of applications for 3x–5x leveraged ETFs tied to single stocks, sectors, and crypto assets such as Bitcoin and Ethereum. Citing Rule 18f‑4’s value‑at‑risk cap and insisting that the true, unleveraged underlying asset must be used as the “designated reference portfolio,” the staff signaled that new ETFs cannot legally target more than 200% exposure. The letters forced issuers either to withdraw or redesign products that sought ultra‑high leverage just as crypto markets reeled from an October–November crash and heavily leveraged products posted outsized losses.

Updated Dec 11, 2025