SEC Seeks Comment on Novel ETFs After NHL, Leveraged Filings

The U.S. Securities and Exchange Commission issued a formal request for public comment on novel exchange-traded funds after recent product filings prompted investor protection questions. In August, Volatility Shares Trust filed to create 32 separate ETFs, each tracking the performance of an individual National Hockey League team. This month, Defiance ETFs filed to launch single-stock leveraged ETFs that would reset exposure six times during the trading day instead of rebalancing once at the close. The SEC asked market participants how such products should be regulated and what characteristics should determine whether a product can be called an ETF.

Morningstar submitted data to the SEC on single-stock and leveraged funds. Its study of 518 single-stock ETFs covering the four years ended July 2026 reported a median cumulative loss of 38% and said the funds charged more than $500 million in cumulative management fees. Nineteen percent of those funds had lost more than 75% of their value since inception, and only 18% outperformed the underlying stock. Morningstar also reported that 24% of leveraged ETFs launched more than three years ago had lost over 90% of their value. A dollar-weighted analysis of 95 daily leveraged long ETFs found nearly half delivered returns below the stocks or indexes they aimed to amplify. Morningstar added that investors paid more than $900 million in expenses over a single year for those leveraged products.

Charles Schwab filed comments urging greater transparency in the SEC review process. The firm opposed a fully confidential review and recommended that any filing discussed privately with regulators still be published at least 75 days before a fund becomes effective, even if that disclosure reduces an issuer’s first-mover advantage.

Carolyn McPhillips, president of MFDF, raised concerns about labeling and investor expectations. She said, “The 1940 Act includes guardrails regarding how the fund is managed, not guarantees of a particular outcome.” McPhillips cautioned that allowing unregistered products to use the term ETF could lead investors to expect the same protections as registered funds.

Market participants and regulators are submitting views on which product features should be allowed under the ETF name. The SEC’s comment process could affect disclosure requirements, approval procedures, the timing of public filings and whether the agency sets formal definitional standards for ETFs under U.S. securities laws.