June 20, 2017 / 8:26 PM / 5 months ago

More quadruple-leveraged ETFs proposed despite SEC review

NEW YORK (Reuters) - Intercontinental Exchange Inc’s (ICE.N) NYSE Arca exchange is asking the U.S. Securities and Exchange Commission for permission to list a new set of exchange-traded funds that aim to quadruple the performance of the market, a filing this week showed.

The exchange would list two "ProShares QuadPro" ETFs that would aim to deliver four times the return of an index of S&P 500 .SPX or Russell 2000 futures over a single day. A fund whose index declines 5 percent might fall by 20 percent.

Another two QuadPro funds would target four times the inverse of those benchmarks. That means a fund could gain 8 percent on a day the index it tracks falls by 2 percent.

The proposed listing of the quadruple-leveraged ETFs comes amid ambivalence on the part of the SEC about such products.

Last month, the SEC approved what would have been the first such “4X” funds in the United States but then halted that decision pending further review. Those funds would be branded ForceShares and carry the tickers “UP” and “DOWN.”

ETFs offering three times leverage already trade in the United States, but more reactive products have been limited to Europe.

“To the extent these products will be coming to market, we believe it is important they be offered by providers that bring the deep experience and resources necessary to manage them appropriately and to educate investors about their potential risks and benefits,” said a spokesman for ProShare Advisors in a statement emailed to Reuters.

Brokerage firms have been penalized for selling leveraged ETFs to investors for whom they were not suitable. BlackRock Inc (BLK.N) Chief Executive Larry Fink in 2014 said the leveraged ETFs’ structural problems had the potential to “blow up the whole industry one day.”

“Leveraged ETFs are not for the faint of heart - you can get hurt very easily if hold on to any of these products for the long haul,” said Todd Rosenbluth, director of ETF and mutual fund research at CFRA.

“For those that are willing to take the risk, there’s the potential for reward.”

“Our top priority is partnering with our ETF issuers to help them to bring new, innovative and interesting products to market,” said Douglas Yones, NYSE’s head of ETFs, in an emailed statement to Reuters.

A separate ProShares filing shows the company is planning additional “QuadPro” funds targeting crude oil and U.S. Treasury bond futures.

Reporting by Trevor Hunnicutt and John McCrank; Editing by Tom Brown and Steve Orlofsky

Our Standards:The Thomson Reuters Trust Principles.
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