US regulators have told ETF issuers to halt plans for ultra-leveraged products, with the SEC's Division of Investment Management warning trustees not to approve new 5x leveraged funds. The agency delivered this message in a brief call to fund counsel and trustees, Bloomberg's Isabelle Lee and Vildana Hajric reported. The SEC appears to be drawing a firm line against products that could completely implode during market volatility.

This crackdown follows multiple applications from firms including Leverage Shares, GraniteShares, Direxion, ProShares, and Roundhill Investments. The concern centers on extreme downside risk - a 25% single-day drop in an underlying asset would trigger a complete wipeout for a 5x leveraged ETF, which cannot decline more than 100%. This isn't theoretical: GraniteShares' 3x Short AMD product was forced into liquidation last October after AMD surged 38%.

Meanwhile, the ERShares Private-Public Crossover ETF (XOVR) faces scrutiny for holding 37% in SpaceX, testing SEC limits on illiquid securities. The fund has struggled to keep pace with tech benchmarks despite its coveted private company stake. These developments highlight growing regulatory focus on ETF risk management as the $19 trillion industry continues expanding into increasingly complex products.