On October 2 local time, the U.S. Securities and Exchange Commission (SEC) approved a rule change for the Cboe BZX Exchange to list and trade six 3x leveraged exchange-traded products. They cover bitcoin, ether, gold, silver, crude oil and natural gas and are issued by VS Trust, which is operated by Volatility Shares. Although “ETF” appears in their names, they are legally commodity-pool exchange-traded products (ETPs), not investment companies registered under the U.S. Investment Company Act.
Each product seeks, before fees and expenses, three times the daily performance measured by changes in the value of a futures portfolio for the relevant asset, such as bitcoin or ether. The products use futures together with cash and cash equivalents posted as collateral, and the futures they invest in trade on designated contract markets (DCMs) designated by the U.S. Commodity Futures Trading Commission (CFTC).
The 3x objective applies on a daily basis. An SEC investor bulletin explains that daily rebalancing and compounding can cause the cumulative return of a product held for more than one day to differ from a simple multiple of the benchmark’s return over the same period.
The SEC cited price and holdings disclosures, market surveillance, trading-halt provisions and continued-listing requirements as grounds for approval. It said Regulation Best Interest, which requires broker-dealers recommending a product to retail customers to consider its risks and costs and the customer’s investment profile, would apply. Existing Financial Industry Regulatory Authority (FINRA) requirements governing sales of leveraged products and customer margin would also apply.
The decision approves the rule change needed to list and trade the six products. The approval order does not specify the actual trading launch date or the precise fee rates.