Statement Regarding the SEC Release on “Use of Derivatives”

The following statement was offered by Daniel O’Neill of Rafferty Asset Management, LLC (Advisor to the Direxion Shares ETF Trust) Regarding the SEC Release on “Use of Derivatives by Registered Investment Companies and Business Development Companies”

NEW YORK – “In March 2010, the Securities and Exchange Commission (the “Commission” or “SEC”) staff launched a review of the use of derivatives by registered investment companies, including exchange-traded funds (“ETFs”). On Aug. 31, 2011, the SEC published a Concept Release titled “Use of Derivatives by Investment Companies under the Investment Company Act of 1940” to assist the SEC staff in exploring the benefits, risks, and costs associated with funds’ use of derivatives. Last Friday, Dec. 11, the SEC published a 420-page Release (the “Release”) titled “Use of Derivatives by Registered Investment Companies and Business Development Companies” in which it proposed Rule 18f-4, a new exemptive rule under the Investment Company Act of 1940 (the “Investment Company Act” or “Act”) designed to provide an updated and more comprehensive regulatory approach to derivative use by funds.

“Rule 18f-4 would permit mutual funds and ETFs to enter into derivatives transactions provided that the funds comply with the conditions of the proposed rule. A fund that relies on the proposed rule in order to enter into derivatives transactions would be required to:

  • Comply with one of two alternative portfolio limitations designed to impose a limit on the amount of leverage the fund may obtain through derivatives transactions and other senior securities transactions;
  • Manage the risks associated with the fund’s derivatives transactions by maintaining an amount of certain assets, defined in the rule as “qualifying coverage assets,” designed to enable the fund to meet its obligations under its derivatives transactions; and
  • Depending on the extent of its derivatives usage, establish a formalized derivatives risk management program.

“Rafferty Asset Management, LLC (“RAM”), the investment advisor to the Direxion Shares ETF Trust, is reviewing the Release and proposed Rule 18f-4 to determine its potential impact on the management of the various Direxion Shares portfolios. RAM appreciates the SEC’s efforts in attempting to clarify derivative use by funds and its attention paid to the unique situation of leveraged funds in particular. The Release discusses leveraged ETFs in several contexts, including the following:

  • The Release recognizes that leveraged funds (mutual funds and ETFs) use derivatives extensively. It notes that leveraged ETFs operate pursuant to exemptive orders granted by the SEC and asks whether leveraged ETFs should be grandfathered on the basis that they operate pursuant to the terms and conditions of exemptive orders granted by the Commission. (This suggestion is made in the context of a broader contemplation of grandfathering “funds that are operating in excess of the proposed rule’s portfolio limits as of a specified date.”)
  • The Release also contemplates a higher portfolio exposure limit for leveraged funds, including ETFs, because the products “operate as trading tools that seek to provide a specific level of leveraged exposure to a market index over a fixed period of time, and because the amount of leverage is an integral part of their strategy.” In this context, the Release asks whether the use of derivatives by leveraged ETFs, which operate pursuant to exemptive orders granted by the Commission, should be regulated “in the exemptive application context, based on the funds’ particular facts and circumstances, rather than in rule 18f-4, which would apply to funds generally.” The Release also asks, would the exemptive application process “be a more appropriate way to evaluate these funds in order to consider their use of leverage together with other features of these products (such as their objective of seeking daily returns) that are not shared by funds generally?” (The Direxion Shares ETF Trust currently offers a number of series that operate as leveraged ETFs pursuant to exemptive relief previously granted by the SEC.)

“The Release provides for a 90-day comment period, commencing with publication of the release in the Federal Register, during which time interested parties can raise specific issues for SEC review. The Commission encourages parties to submit supporting data and analysis with those comments to assist in its rulemaking initiative. RAM intends to provide comments, and we encourage all interested parties to comment as well. Comments can be submitted at: The SEC will consider comments prior to determining what action to take with respect to the proposed rule. In addition, proposed Rule 18f-4 suggests a transition or implementation period of 18 months after adoption, and solicits comments on an appropriate length of implementation, asking for feedback on the appropriateness of a potentially longer period for particular types of funds, such as leveraged funds. 

“RAM is not in a position to speculate on the final form of Rule 18f-4, the timing of adoption or whether leveraged funds and/or ETFs will be subject to the rule. RAM recognizes the concern that shareholders of Direxion ETFs and Funds may have given certain news reports. However, Direxion Shares will not be impacted by the proposed rule in the near term and investors can continue to rely on the products to navigate changing markets.”

About Direxion

Direxion builds products for investors who want more than the status quo. Our index-based products deliver directional options, magnified exposure, and long-term, rules-based strategies. Founded in 1997, the company has approximately $9.2 billion in assets under management as of September 30, 2015. Direxion’s diverse suite of products helps investors navigate today’s ever-changing markets. For more information, please visit




There is no guarantee that the funds will achieve their objectives.

For more information on all Direxion Shares daily leveraged ETFs, go to, or call us at 866-476-7523.

The ETFs are not suitable for all investors and should be utilized only by investors who understand the risks associated with seeking daily leveraged investment results, and intend to actively monitor and manage their investments. Due to the daily nature of the leverage employed, there is no guarantee of amplified long-term returns. Past performance is not indicative of future results.

An investor should consider the investment objectives, risks, charges, and expenses of Direxion ETFs carefully before investing. The prospectus and summary prospectus contains this and other information about Direxion ETFs. Download a prospectus and summary prospectus at The prospectus and summary prospectus should be read carefully before investing.

RisksAn investment in the ETFs involves risk, including the possible loss of principal. The ETFs are non-diversified and include risks associated with concentration risk that results from the Funds’ investments in a particular industry or sector which can increase volatility. The use of derivatives such as futures contracts, forward contracts, options and swaps are subject to market risks that may cause their price to fluctuate over time. The Fund does not attempt to, and should not be expected to; provide returns which are a multiple of the return of the Index for periods other than a single day. For other risks including leverage, correlation, compounding, market volatility and specific risks regarding each sector, please read the prospectus.

Distributor: Foreside Fund Services, LLC.