SEC Halts Direxion 3X ETF Filings Over Excessive Leverage

TLDR:

• US regulators issued an SEC warning to ETF issuers after Direxion submitted filings for multiple 3X leveraged funds.
• The SEC said rule 18f-4 limits leverage by requiring funds to measure VaR against unleveraged reference assets.
• Dozens of Direxion filings in October 2025 face delays until objectives and strategies meet leverage compliance rules.
• The letter states filings must be revised or withdrawn, with further review paused until issues are resolved.

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The US has issued a clear SEC warning to ETF issuers seeking approval for highly leveraged products. A letter dated December 2 outlines concerns about newly filed Direxion funds targeting 3X exposure to major assets. 

Regulators flagged issues tied to leverage limits under rule 18f-4. The agency signaled that filings will remain inactive until concerns are resolved.

SEC Warning to ETF Issuers Raises Questions Over Direxion’s 3X Filings

The correspondence, addressed to counsel for Direxion Shares ETF Trust, cites leverage exposure beyond 200 percent as the core issue. 

Regulators referenced post-effective amendments from October 2025, which included multiple 3X long single-stock ETFs. The letter states that the agency will not conduct further review until Direxion addresses the concerns raised.

According to the filing, rule 18f-4 requires open-end funds to stay within a Value-at-Risk limit set against an unleveraged reference portfolio. 

Regulators noted that each Direxion fund must use the actual securities it tracks as its designated reference portfolio. The letter adds that identifying the assets by name or labeling them as an index does not alter this requirement.

The agency questioned how a derivatives risk manager could choose an alternative baseline when the rule outlines a clear approach.

Directors were also asked to consider how such a decision aligns with their fiduciary duties. The letter requires Direxion to revise its objectives or withdraw the filings altogether.

Dozens of 3X Products Flagged Across Tech, Crypto, Energy, and Metals

Appendix A lists a long roster of 3X leveraged funds submitted by Direxion throughout October. The first batch filed on October 3 includes proposed ETFs tied to AAPL, TSM, AMZN, GOOGL, META, MU, NFLX, NVDA, PLTR, and TSLA. 

A second October 10 submission covers leveraged products tracking AMD, UNH, AVGO, BABA, BRKB, COIN, HOOD, INTC, MSFT, and ORCL.

Another filing on the same day features 3X products tied to Bitcoin, Ether, Energy, Gold Miners, Junior Gold Miners, MAG7+, Oil and Gas Exploration and Production, the Qs, and QQQE. 

Regulators stated these filings will not move forward until the requested revisions are made. The letter also reminds issuers that fund management remains responsible for the accuracy of disclosures.

The agency directed that responses must be filed as supplemental correspondence on EDGAR. The letter repeats that delays will continue until each issue is addressed in full. Contact information for follow-up inquiries was included at the close of the document.

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