Leveraged ETFs typically track large and liquid indices. Consequently, any liquidity needs are quickly met in the same way other index-based ETFs rebalance throughout the year, except leveraged/inverse ETFs rebalance on daily basis.
Additionally, leveraged/inverse ETFs only make up a small portion of the ETF space, which makes it less likely that such a small area could affect the overall financial market. Leveraged/inverse ETFs have about $41.0 billion in assets under management, whereas the total U.S.-listed ETF space has over $2.0 trillion in assets, according to XTF data.
The SEC’s chief economist, Mark Flannery, has stated that his staff was working on a new white paper to study whether or not ETFs “exacerbate financial volatility.” Nevertheless, Piwowar has said that the Federal Reserve’s own economists recently found claims about ETFs and volatility to be “likely exaggerated” and “overblown.”
For more information on ETFs, visit our ETF 101 category.
Max Chen contributed to this article.