U.S. 5x Leverage ETF to Be Launched

Son Min

Summary

U.S. asset manager VolatilityShares reportedly requested an SEC review to introduce 5x leverage exchange-traded funds (ETFs).
The ETFs are structured to track the daily volatility of major tech stocks and crypto assets up to five times.
The easing of SEC review standards is pushing the listing of such high-risk investment products, but they can be liquidated immediately if they fall 20% in a day.

Tracks tech stocks and crypto asset prices

An exchange-traded fund (ETF) that tracks the price movements of major U.S. tech stocks and crypto assets at five times is expected to be launched.

On the 16th, Bloomberg News reported that U.S. asset manager VolatilityShares requested listing review for 27 new ETFs from the U.S. Securities and Exchange Commission (SEC) on the 14th. All are leveraged ETFs structured to track the daily returns of nine individual stocks (Tesla, Nvidia, AMD, Amazon, Coinbase, Circle, Alphabet, Strategy, Palantir) and four crypto assets (Bitcoin, Ethereum, Ripple, Solana) at three times or five times.

This follows the SEC's recent significant easing of review standards for leveraged ETFs. Last month the SEC shortened the review period for ETFs tracking crypto asset spot prices from up to 270 days to 75 days, making them automatically listed if the SEC does not exercise its veto within that period. Until now, the SEC had limited the maximum leverage ratio for single-stock ETFs to two times.

A 5x leverage ETF can 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 of this month amid renewed U.S.-China trade tensions.

Mohit Bajaj, a director at Walakbes Capital, said, "I wonder whether there will be market makers and futures firms to operate 5x leverage ETFs," adding, "It will show how far financial regulators and the securities industry are willing to accept."

Reporter Jeon Beom-jin forward@hankyung.com