The Securities and Exchange Commission (SEC) appears to be sending out contradictory signals regarding the use of leveraged ETFs following the approval and subsequent review of two new quadruple leveraged ETFs.

Newly appointed Securities and Exchange Commission chair Jay Clayton

The proposed ForceShares Daily 4X US Market Futures Long Fund and ForceShares Daily 4X US Market Futures Short Fund were initially approved by the SEC for listing on the NYSE Arca exchange.

Now, however, this ruling appears to be in doubt after the SEC announced it plans to review the decision.

These latest developments come after the SEC appeared to be moving against leveraged ETFs entirely. The SEC and the Financial Industry Regulation Authority (FINRA) have repeatedly issued warnings about the need to protect investors from complex and unsuitable products. And earlier this year the SEC said it would continue to focus on “sales practices and disclosures involving ETFs and the suitability of broker-dealers’ recommendations to purchase ETFs with niche strategies.”

This rhetoric was backed up with action, when, in 2016, Oppenheimer was fined $2.25 million for the inappropriate recommendation of leveraged ETFs to retail customers, and in 2017, Morgan Stanley agreed to pay $8m in a settlement agreement over charges relating to the recommendation of inverse ETFs that were not suitable for certain clients.

In 2015, the Commission proposed a rule that seeks to limit the use of derivatives by registered investment companies, including exchange-traded funds to “safeguard both investors and our financial system,” (See: SEC derivatives proposal could impact US-listed leveraged ETFs). At the time, it was thought that if the rule came into effect it might oblige leveraged ETF providers to change the legal structure or leverage factor of certain products, or even close them down.

Former SEC chair Mary Jo White stated finalising the proposal was a priority, but the priorities of new chair Jay Clinton are unclear. The recent approval of the quadruple leveraged ETFs signals that this rule is likely dead or at the very least in limbo, according to Todd Ehret of Thompson Reuters Regulatory Intelligence.

ETFs that offer triple leverage are already listed in the US, such as the ProShares UltraPro QQQ (Arca: TQQQ), which has $1.7 billion in AUM and offers 3x exposure to non-financial equities listed on NASDAQ.

Market participants, especially leveraged and inverse ETF providers, will be closely monitoring the outcome of the SEC’s review of 4x leveraged ETFs to get some idea of the likely direction of regulation in the future.

At present, the SEC is sending out very mixed signals.