Summary
- Volatility Shares, a U.S. asset manager, is seeking to list exchange-traded funds (ETFs) that would track major tech stocks and large cryptocurrencies, including Bitcoin and Ethereum, at 5x.
- The ETFs Volatility Shares applied for are leveraged ETFs, characterized by applying 3x or 5x leverage, exceeding the SEC's 2x maximum leverage cap.
- 5x leveraged ETFs could be liquidated immediately if the underlying asset falls 20% in a day, and could act as a factor that increases investment risk alongside greater market volatility.
A U.S. asset manager, Volatility Shares, has moved to pursue the listing of an exchange-traded fund (ETF) that would track the price movements of major tech stocks such as Tesla and Palantir and large cryptocurrencies such as Bitcoin and Ethereum at 5x.
According to Bloomberg on the 16th, Volatility Shares filed with the U.S. Securities and Exchange Commission (SEC) on the 14th (local time) to request listing review for 27 new ETFs. All are leveraged ETFs structured to track daily returns at 3x or 5x for 9 individual stocks (Tesla NVIDIA AMD Amazon Coinbase Circle Alphabet Strategy Palantir) and 4 cryptocurrencies (Bitcoin Ethereum Ripple Solana).
Market observers say Volatility Shares is testing the SEC's relaxed review standards for leveraged ETFs. Last month the SEC shortened the maximum review period for spot cryptocurrency ETFs from 270 days to 75 days. If the SEC does not exercise its veto within that period, the listing is automatically approved.
The SEC has so far limited the maximum leverage multiple for single-stock ETFs to 2x. Volatility Shares' proposed 5x leveraged ETFs could be liquidated immediately if the underlying asset's price falls 20% in a single day. In fact, Tesla's stock plunged 21.06% in a single day on September 8, 2020. Ripple fell 15.4% on the 10th amid renewed U.S.-China trade tensions.
Mohit Bajaji, a director at Walakbes Capital, said, 'I question whether there will be market makers and futures firms willing to cooperate in operating 5x leveraged ETFs,' adding, 'It will reveal where the limits are that regulators and the securities industry can accept.'
Reporter Jeon Beom-jin forward@hankyung.com
Korea Economic Daily
hankyung@bloomingbit.ioThe Korea Economic Daily Global is a digital media where latest news on Korean companies, industries, and financial markets.
