ETF Edge - Hourly reset? 9/14/26

Episode Date: September 14, 2026

The growth of retail trading is driving issuers to move faster… towards more disruptive products. Now, “time” is of the essence.  Hosted by Simplecast, an AdsWizz company. See pcm.adswizz.com for information about our collection and use of personal data for advertising.

The EETF Edge podcast is sponsored by InvescoQQQ. Let's rethink possibility. Investco Distributors, Inc. Welcome to ETF Edge, the podcast. If you're looking to learn the latest insights on all things, exchange, traded funds, you're in the right place. Every week, we're bringing you compelling interviews, thoughtful market analysis, and breaking down what it all means for investors.

I'm your host, Dominic Chu. Retail investors' demand for new products is pushing issuers to get sharper and sharper with their new offerings. in more ways than one, and that could cut both ways. Here's my conversation with Sylvia Jablonsky, the CIO and co-founder at Defiance ETS, and Justin Schack, Rosenblatt Security's partner and head of market structure. I want to start, first of all, with some of the news, I guess, that's coming out in this and the reason why we're talking about this, and it's for you, Sylvia.

We know that there is now a filing that has been made, and we are going to, to see at some point if the regulators kind of let this thing go and come to fruition, a more, I guess, robust offering of inverse and levered type products, but not just reset on a daily basis, reset on an intraday basis, and in some cases, on the hourly basis. Can you take us through Sylvia why you and your firm are one of the people that's spearheading this movement towards more specified tools in ETF markets? Yes, and good afternoon, Dom, and I'm glad that we're the one making the noise in the ETF industry. That's always good to hear. Hopefully it's good noise. But yeah, so Defiance

has filed for 16 hourly reset leveraged ETFs. And so there are two times levered funds, similar to the two X daily funds that are out there. But instead of resetting at the end of the trading day, they reset at the end of each hour. So you'll have, you know, six resets or so per day. they reset hourly. And, you know, so why do this? The reason why is because for the last, you know, decades or so, defiance has just been watching leverton inverse traders and monitoring their behaviors and, you know, kind of like looking at the holding periods. And what was notable to us is that, you know, the 2X daily funds are sometimes held for periods of time that are shorter than one day. And why is that? That's because I think active and sophisticated traders are looking to trade on news.

They're looking to trade on a tweet. They're looking to trade on an earnings call, you know, a drug discovery announcement. You know, you kind of saw that happen with Moderna the other day. And there's no product out there that actually, you know, captures the compounding hour to hour or for that hour.

And so, you know, we really thought that there was a room for this in the market. We thought it was a precise tool for those hourly traders, which very much are out there in the market and exist. And, you know, we're doing the top names, like the Navidia, Tesla, Meta, Microsoft, we filed for 16 of them or so, and it's just for these traders looking for that precise exposure. That precise exposure, if I could just follow up, Sylvia.

Have you seen, and you've obviously done a lot of research and market analysis on the types of traders, the types of people who use these products, just how much demand do you think there will be for these types of products that don't just reset on a daily basis? Because it was already tough enough to have some investors and traders, risk manager on that, but now have to do it on an intraday basis, possibly six times a day. Right. So if you look at the, you know, kind of the tam of the levered ETFs, I mean, they've massively grown 31% of all ETF launches this year where we're levered and inverse funds.

You're talking about, you know, hundreds of billions that have come into the space globally. And, you know, so we think that very much it's in that neighborhood, right? So any trader that is looking to trade a daily levered product that resets at the end of its day could be interested in trading it for an hour. You know, we're not saying that every trader is going to come in and, you know, hold it for the six hour period. Some may trade it for an hour. Some may hold it for the six hour period. It depends on, you know, the direction of the market, the type of momentum that they're getting during the day. It's the same type of thing, right?

When you have a bull fund and the market is rising, compounding works in your favor over a period of time. Well, if you have a bull market and the prices are rising throughout the day, compounding works in your favor, potentially more so than a levered ETF that rebounds at the end of the day. You know, I want to mitigate that and say that these are still levered funds in volatile range-bound markets. You can certainly decay, you know, lose profits and things like this. They're for sophisticated traders. But that's the intention.

It's to really take advantage of that intraday compounding. All right. That's good context to put it in. because then Justin, I will turn to you about this. As somebody who has watched market structure now for decades at this point, you've seen a lot of different products come to market, and you've seen a lot of different ripple effects happen because of those product launches. What do you think about intraday reset, levered, and or inverse type ETFs?

Do you think that there's going to be a market impact for those people who trade it, or is it going to be somewhat of a runway because it won't be highly adopted right in the beginning, but could see a little bit more of that evolution, as the weeks and quarters go by. I mean, that's really an unknown, unknown, Dom. I'd love to be able to have a better answer for you on what the future will hold for that. I can tell you that the products that exist today,

dovetailing on some of the things that Sylvia brought up, are very, very popular. When we look at, you know, we put out a report every month on ETP activity in the marketplace, and I think just today we set out the most recent version. We looked at the month of August, and I think it was eight of the top 10 ETFs by volume, average daily volume were leveraged in inverse products.

And even if you looked at just the entire stock market, four of the top 10 equities, period, including corporates and ETFs, were single stock, you know, ultra-long, ultra-short type products. Now, the markets are very interconnected, right? So someone owning or Sylvia's firm operating this is going to have to figure out a way to provide that exposure in the underlying name. so she'll be much better positioned to explain how that happens than I will, but then you also have people that make markets in these instruments.

So while they're buying and selling that instrument, they're also tend to be buying and selling the underlying stock, maybe the options that are based on that product, maybe index options that those stocks are a part of. And so, you know, there is the potential for movements in one security to affect other securities and the broader market. I will say that as I think about when you're talking about, some of the ripple effects. The market has evolved in ways over the past 10 to 15 years that

provide some safeguards there. So some people may remember the flash crash of May 2010. We now have intraday volatility protections in the form of something called limit up, limit down bands. So if something happens to really go down or up by a tremendous amount in a short period of time, that security can get halted. So we have a way to make sure that if if everybody is heading for the exits or rushing into the entrance at one time, that that can happen in a more orderly fashion. Justin, could I follow up there by speaking a little bit more to that dynamic, vis-a-vis the regulatory environment that we're in right now?

A lot has been made about this current iteration of regulators, both at the SECTC and elsewhere in the financial markets. That seemed to be a little bit more, if you'll kind of forgive the generalization of it, more open towards product innovation and towards kind of letting these things, products develop and kind of seeing how they work in the wild, so to speak, before they really try to kind of limit their dynamics and whatnot. How much does that regulatory environment factor into how much somebody like you has to figure out how these instruments will ultimately ripple through market structure? Yeah, I mean, we tend to be reactive, right? So when we see, I think you're

absolutely right. We are in an environment where the folks in Washington tend to be more permissive. they tend to be more hands-off, free market oriented and say, you know, look, as long as the customer understands and there was disclosure and they know what they're getting into, we're not going to try to be the nanny state and say, well, this is what you should be trading or shouldn't be trading. They're not about to say, you should just be like Jack Bogle, right? You know, they're going to say, go ahead and experiment with these things, as long as you know what you're getting into and what the risks are. For us, we just sort of watch what happens, and as these products come out and more and more

trading goes into them, that affects a lot of the dynamics that we look at for our institutional customers, for instance. What percentage of the market is coming from retail, the volume in the market is coming from retail? Because we have institutional customers that are trying to figure out, well, when I'm buying and selling or selling XYZ stock, how much of that liquidity in the market is actually accessible to me? Because retail volume tends to just sort of get siphoned off and executed off exchange where they can't interact with it. So we look at things like that very, very closely. As these products get more popular, they account for a larger and larger percentage of the volume in the marketplace.

Sylvia, how much has that regulatory environment factored into what you're doing over at Defiance, what other people in the business, the industry are doing with regard to putting out new product? You mentioned, and you and Justin both, some of the stats around the growth of actively managed ETFs, those that use leverage, those that use kind of the inverse nature of performance. How much do you kind of think about the market dynamic and how much do you kind of How much do you think about demand, that total addressable market, before you conceive of some of these types of products and then seek the regulatory approval to bring them to market? Well, I think this has probably been one of the most exciting years, or the last two years

in particular in ETFs that I've ever seen in my ETF career anyway. You're talking about $16.4 trillion worth of ETFs and close to $300 billion of thematics in 26. The amount of funds that have launched so far this year is over 1,000, and that was the, I think there were about 1100 that launched the entire year last year, right? So we're at like a 50% increase there. What's changed in ETF? So to answer your question, how much do we think about it? We know the appetite is there because we've seen it in our own products, you know, especially around AI and anything that has to do with AI, AI infrastructure and its cousins, you know, like the quantum, the AI power, the capacitors, all of these different themes have taken off very, very quickly.

You know, it used to be that you come out with a thematic ETF idea. You spend a whole lot of time trying to get out there and educate and, you know, and market the product and teach about the theme. But ETFs have been moving so quickly now that, you know, in the blink of an eye, some of these products become so popular because they didn't exist. And the market appetite is insatiable for some of these AI. related themes. And so what's changed now, I would say, is not so much the regulatory environment. You know, we have all of the same processes and procedures. We have to follow all of the same rules and seek all of the same permissions to go effective. And, you know, it's kind of the regulators bless funds to go effective and can stop funds and everything remains the same.

What I will say that has changed is that if you have a good idea as an ETF, sure, you have to move so quickly because products are coming to filing so quickly. And the competition is just so hot for the same theme amongst us issuers. So it's really like who has the most disruptive idea can get it to be filed in the quickest amount of time and, you know, and obviously construct the right way and think through it. It's just become highly competitive, I would say. Sylvia, how much is that first move or advantage something that you have to pay attention to as an ETF provider, a sponsor of some of these funds? You mentioned, you know, the competitive nature of everything that's going on. Is it maybe the assertion that you have that if you are not

maybe first or second to market for some of these new hot products that you don't have as much of an edge or can't make it a viable business, at least for some of these funds going forward, if you're not kind of first or second out of the block? Yeah, I mean, we have seen that time and time again, and we have been, you know, bitten by that at defiance, right? So you definitely, if you have an idea and you have high conviction as an ETF issuer, you want to be first to market, you have the best chance of success, particularly for thematic funds. I think with leverage funds, you know, there's, you've seen that in the case of SpaceX. There are several levered SpaceX funds. A lot of issuers gathered assets there and are doing well, but there aren't so many examples of that.

It's usually there's a winner and a loser. And with thematic ETS, you've really seen that play out. And so first mover advantage just goes such a long way. All right, so first mover, Justin, to your side of things, how much do you pay attention to these new types of products coming to market, specifically, in this case here, with intraday resets for levered and or inverse type products coming out in the future? How much do you kind of have to factor in what you know and don't know into how you will analyze the impact of some of these types of products for your clients? In other words, what types of things will you be looking at from a variable basis and or information databases to kind of give you the ammunition you need to provide

the most insights to your clients over at Rosenblatt. How exactly do you add value knowing the types of products that are coming out are getting even more sophisticated like they are right now? Yeah, well, it's not so much the focus on the ETF itself for us because they tend to be more retail-oriented products and not institutional products, but how they impact the underlying. And so that would be the individual stocks on which they're based, but also just the broader market and if we're trading, say, 15 billion or 20 billion shares a day, which seems like a crazy number now when we were at 6 billion, not that long ago, you know, how much of that is just from this retail activity in instruments like these, and then the activity that they generate

in the underlying and some of the other related instruments in the market. So, you know, if somebody is trading one of those underlying stocks as part of an institutional portfolio, someone sitting on the trading desk really wants to know, like, okay, what is the addressable liquidity available to me. And in most cases, the retail trading is not available for them to interact with. So they're always trying to make this calibration of, okay, the volume is X in this name. I have to do a haircut on that. So I can know what the liquidity is. I can know what type of execution strategy I want to pursue. And then there's just also a larger sense of how involved is retail in this market. And that's something that we've watched very, very closely, and we've been surprised by the persistence

of the demand and the retail participation. I mean, I think back to like the first wave of online brokerage in the late 90s and early aughts and the dot-com craze. And when that bubble burst, a lot of those people had opened up e-trade and Ameritrade accounts when those companies were brand new kind of closed them up and didn't come back for a long time, if ever. That hasn't happened this time around. We see a generation of traders, mostly younger, that look at these sorts of instruments.

They want to take higher risks with their finances, maybe than people from our generation did. And they're turning to these type of products, but not only these products in the equities markets, but a whole host of other risky instruments, whether it's sports books, prediction markets, perpetual futures. And so I think it was 20% of total stock market volume, if we go back to 2020, was from retail. The data that we used to make that estimate only go back to 2020. I think if we went back a little bit further, it would have been even lower. And the pandemic, obviously, was a big catalyst there. We saw that go as high as 45% in 2021.

It backed off in 2022, but it hasn't gone back down to or below 20. We're in a range of 25 to 35% now of all volume in the stock. market coming from retail. And I think a big reason for that is this different environment that we're in now where people feel like they need to take these risks to, you know, sort of get ahead or try to get ahead in a world where it's increasingly difficult to afford things. Sylvia, that leads me to my next question. The final ones we kind of cap things off here. As you look at the universe that you have and the retail traders that traffic in your types of products over Defiance, is it safe to say that to just a

point since 2020, since the pandemic and the emergence from it, that these retail traders and investors are more sophisticated, they understand the risks better in the marketplace and are better equipped to use the types of products that are being put out there right now, like intraday reset levered into ETFs. Yeah, absolutely. And Justin made a lot of great points and gave us a lot of good data there. I think that, you know, what happened during the pandemic is that a lot of, there were always sophisticated traders in the market that were trading two X levered funds, whether they were retail, hedge funds or institutional. But I think what happened during the pandemic is that, you know, a lot of people were at home and for the first time became interested in trading.

They became interested in, you know, how to outperform some of the types of returns that they were seeing, just having, you know, passive allocations in, for example, a 401K fund. And, and some of them were younger and, you know, looking to perhaps. add different types of tech and higher beta plays and, you know, slightly more risk and diversification to their portfolios. And they learned how to trade. They learned about markets. And I think this coupled with, you know, the amount of information out there, whether it's through, you know, all of you at CNBC educating traders and the retail community on stocks and markets and things like this, whether it's through, you know, YouTube and X and a lot of the spaces that are out there now that really catered towards that next-gen trader, there's just so much awesome education out there.

And then what I will say is, as ETF issuers, particularly on the Lever and Inverse stuff, the, you know, the tradable 2X products and things like this, you know, we feel such a responsibility to educate, right? We don't ever go out there and try to pitch these products. We try to really educate and put it out there and explain how they work and, you know, get people comfortable with them and our competitors do the same thing, you know, to their credit. And I think that this, you know, in the spirit of just education information that has been put out there, retail has also really learned about these products. And for some retail traders,

they've, you know, really benefited from that. And they've embraced the singles, the levered funds, the index funds and, you know, great. And for others, they've realized this isn't for me and they've moved on. But I think education is a lot better. Information is very much, you know, out there in a way that it's never been before. And it's really a sweet spot to be in ETFs. You know, it's this great rapper now that actually like serves its purpose when you think about what's going on in the world. Again, with AI and some of these derivatives of AI, you know, it's a way to get diversified exposure to a sector that you can't trade yourself. And then the other thing I'll say is that, you know, in the recent years, it's really been the retail money that's the smart money. Now the institution wants to know what the retail, you know, trader is doing and, you know, kind of following their lead.

So it's certainly, you know, stepped up, stepped up the knowledge in the marketplace. All right, so Justin, I'll give the last word to you. From your perspective and your opinion, what are the types of things that you will be looking for in the coming weeks and quarters to tell you whether or not there is any kind of a significant impact towards rolling out products that are geared towards intraday reset liquidity? I mean, one of the easiest things to look at is just the volumes, right? Is these products, if they do get approved, they're made available to everybody. You know, Sylvia talks about education, and that's fantastic, but it's not just the people who are receiving the education who have the ability to trade these products, right?

So we will look at volume, but I think over a much longer period of time, not just weeks, quarters, I'll be looking to see, you know, how do people do with not just products like these, but how does that retail investor that came in in 2019 and 2020 and stuck with things, stuck with a really, you know, passed a really tough 2022 and is still really engaged. as they embrace these really risky products, how are they doing? Right? Because a lot of this stuff, you know, some people may do well with them. The ones who receive the education and focus on that may do well with them. Some of them may not. And I think with a lot of these risky products, particularly when you think about some of the more exotic stuff, like sports books and prediction markets, which are basically sports books and a different regulatory wrapper,

the house tends to always win, right? So I wonder if some of these folks will regret getting involved with some of these products. And then maybe we'll see that retail participation decline or just the problem that is feeding this, helping feed this retail participation, maybe get a little bit worse that people feel like, okay, I tried all this risky stuff. It didn't work. Now what do I do? Now it's time to round out the conversation with some thoughtful analysis and perspective to help you better understand ETFs with our Markets 102 portion of the podcast. Sylvia Jablonsky, the chief investment officer and co-founder at Defiance ETFs continues with us now.

Sylvia, thanks for taking the time to join us on the podcast. I'm going to start kind of along the lines of something we did talk about during the show. And that was the thought process behind bringing to market a product, a possible product at this point, that will give intraday reset performance on some of these kind of 2X, ETFs tied to specific stocks and or baskets in the marketplace. And what exactly you and the team at Defiance did in terms of conversation to come up with the idea of having not just a daily reset levered and or inverse ETF, but having one that can reset multiple times during the course of any trading day?

Yeah. Well, thank you again for having me here, Dom. There was a lot of conversation around this. And it's just been, it's something that our clients have talked to us about. Institutional sophisticated investors have talked to us about. And, you know, the idea here is that, so we filed for 16 hourly reset, two times leveraged ETFs on some, you know, stocks like Navidia, Tesla, Microsoft, things like that, and some indices things like this.

So instead of resetting a 2X target once a day at the close, these basically reset every hour. So six or so times during the trading day. And, you know, why we did this is we talked to so many of our largest traders of the 2XDLA funds. And they've said, you know, we love the 2x daily ETFs, but markets move on such a short term. Now there's so many sharp catalyst. There's an earnings headline. There's a Fed announcement. There's a viral tweet.

And sometimes the day's trend or the momentum for the day happens in the course of an hour or two hours or three hours and not beyond the training day. meaning like we see this with earnings all the time, right? Like a stock might, you know, rip at the market open and kind of stay there for a couple of hours or two. And then by the end of the trading day, it's kind of back to, you know, somewhere reverse to some kind of bean, right? A little bit higher than started, but lower than the day's high. And so a lot of traders have said to us, like, well, wouldn't it be great to just capture that little chunk of time where that stock is, you know, really moving. And so that's what made us think about this. And it's just supposed to be a tool size to match that one hour window, like cleaner, more precise

exposure for what traders might want around high conviction for that day, news event, whatever it is that happens that day. How exactly do you go about structuring a – I mean, I'm not going to go too into the wheeze because this could be a master's thesis on how kind of derivative instruments and market structure and market making works. But you're talking about a product that is very sophisticated. that you have to risk manage on literally an hour-to-hour basis during the course of any given day. How exactly do you kind of get or construct ETFs like that?

And is it to say that these ETFs have a shelf life and they kind of just disappear at some point? Or are they kind of resetting and then going back to a certain level and then resetting for the next hour? How exactly do we potentially see these things evolving? Is it a ticker that changes rapidly during the course of any given day? and it does it for days, weeks, and months at a time? Or are we talking about ETFs that may have a shelf life and then kind of disappear only for another one to take its place? No, it's actually, so the thing that's great about this is they work basically the same

way that the daily 2X funds work, you know, and in a lot of cases, you're using a total return swap, right? And at the end of the day, the market or the, you know, the index that you're tracking or the single stock that you're tracking closes. and, you know, if it's closed up 2% and you have a 2X daily fund, then you're looking for that 4% of exposure. And so the ETF issue, in that case, would buy exposure on the swap so that, you know, when you're rebalancing the nav, it's showing that 2X that you got for the day.

And this just happens basically at the end of each hour. So it's through the use of equity derivatives, you know, total return swaps. It can be done with options. And it's really the same thing. So for every $2 of performance, you know, you basically get times to 200%, you get $4 of return. And this can obviously work the other way too. So if the market is down throughout the day and we're resetting every hour, you know, you can think about like, well, how does that look versus an end of day, ETF, right? That didn't reduce its exposure every hour throughout the day.

So even on the downside, if you're trending downwards, we're taking exposure off the table every hour. So, you know, the performance comparisons will be interesting to see. And with volatile markets, you know, both of those will do poorly. If you have a 2x CTF that rebounds at the end of the day, you hold it for a couple of days and there's range amount volatility. You're probably going to do worse than 2X, right? And then same thing with the hourly reset during that time period. You'll do worse than 2X. So, but it works the same way.

That's the same way that the levered funds that were used to work. It's just a reset at the end of the hour. All right. So there are products, as we all know, that are in the market right now and are resetting on that daily basis for 2X exposure to any kind of product. How much do you think about just, first of all, we should also say, as of this podcast taping, these products are not live. You have applied. No, they're not live. Right.

You have applied. Right. Exactly. Not live, not effective. But you have put them out there in the kind of, I guess under the assumption that they could be live and or effective. at some point in the not so distant future. How much do you kind of put on both your product development hat because that's what you do,

but then also your regulator hat for what you think the kind of concerns and or maybe issues would be from bringing these to product, these products to market from a regulatory standpoint? Yeah, I mean, I think our, so from a product perspective, we thought that these products were in line

with the two X, daily resetting ETFs, you know, where we understand what the maximum, the current maximum permitted leverage is out there through, you know, the derivatives rule and 18F4 and the information is out there.

So it's a 2X product. It's in line with the 2X products that already exist. You know, the difference is the hourly frequency, you know, to our knowledge, there isn't a limit on how many times you can rebalance a fund throughout the day. But, you know, ultimately it's, it'll be,

you know, kind of up to the regulator to give feedback or ask questions. And of course, we cooperate and collaborate and, you know, ensure we're doing that. But we felt strongly that this was a product that is viable for the marketplace and fits into the construct of lever number of CTFs that are already out there. And then, you know, how do we think about it? Like the biggest thing for us is just making sure the education is out there, making sure that, you know, the correct investors are using it and investors understand the risks and the benefits associated with these products. So our mindset of an ETF issuers is exactly the same, right? Just make sure we explain how they work fairly, educate, you know, as much as possible.

But in terms of running the product, we're obviously very well-versed with that. We already do it for the 2X leverage funds. And again, it's not much different to run this. So you had brought up the idea of education and just how much the types of people will be using this type of product to kind of gain the outcomes that they want to. With my final question for you here, I'd like to ask you a little bit about, I guess, what types of investors are you trying to target for this type of product? Is it predominantly a retail investor base that you're kind of looking for here? Are you looking for more hedge fund type clients? I know that everyone's going to use these things once they are hypothetically out there live and in the wild.

But when you conceive the product, was there a certain part of the market that you thought would be, more, I guess, open to using these types of intraday reset-type products on a levered size? Yeah, I mean, I think that, you know, these are investment vehicles basically for very active, sophisticated investors, whether they're institutional or their retail-like institution. You know, it's really interesting because a lot of the times we'll be talking to a retail person and that retail person is a trader at a hedge fund or, you know, and there's different types of retail traders, of course, but this is really a tool for active, sophisticated investors, you know, looking to gain magnified or inverse exposure to a market. They're very well aware of the risks.

They're very well aware of the funds objectives and what leverage means and what amplified exposure means in both trending markets and, you know, volatile markets and things like this. So I would just say sophisticated short-term traders looking to trade on short-term intraday market catalysts. All right. Well, Sylvie Jablonsky, CIO and a co-founder of Defines ETFs, thank you so much for taking the time to join us here. And please come back and give us the update for when these things progress down the pipeline. We will for sure. We will do. Thank you. All right. That does it for ETF Edge, the podcast. Thanks for listening. Join us again next week or just head over to etfedge.cbc.com. Over the last few decades, technology has transformed our world

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