Traders are splurging billions of dollars on “complex” ETFs to ride out the crushing bear market across assets -- just as Wall Street watchdogs threaten intrusive measures to limit retail participation.

Issuers including ProShares Advisors LLC, Direxion and Innovator ETFs have been flooded with nearly $24 billion of inflows this year into these typically derivatives-powered exchange-traded funds. Investors are navigating the crash in everything from stocks and crypto to fixed income by using the ETFs to bet on more pain or to nab outsize returns during market rebounds.

The bulk of the trading instruments likely fall under the “complex” banner, an ever-expanding category that includes leveraged and inverse vehicles and -- if regulators get their way -- potentially digital tokens and so-called defined-outcome trades.

The products are a growing corner of the almost $6.4 trillion industry, defying words of caution issued by the US Securities and Exchange Commission and others.

“We have this bizarre situation where products have launched and then the SEC staff is saying not to use them,” said Dave Nadig, an ETF expert at data provider and research consultants VettaFi.

Innovator ETFs, which manages defined-outcome trades that hedge market exposures, is fresh off its first-ever billion-dollar quarter of inflows. A ProShares fund that tracks three-times the inverse performance of the Nasdaq 100 got a record one-day inflow of $460 million last week. Assets in US leveraged and inverse trading ETPs have climbed around 8% from the end of June to $72 billion, according to Bloomberg Intelligence data.

Meanwhile, the first single-stock ETFs launched in the US this month, with more than 80 such filings sitting in the SEC’s queue.

The Financial Industry Regulatory Authority called for comments in April on whether more measures should be introduced to raise the barriers to entry for complex products. After receiving a record 12,000, the agency is evaluating whether any rule changes are warranted, said a spokesperson in an email to Bloomberg News.

In an industry defined by rock-bottom fees, it’s inevitable that issuers will attempt to meet that demand with “hyper-narrow, heavily structured products” that command higher expense ratios, according to Nadig. “There’s very little green field left to build straight-forward and low-cost products, so the only things left are more complex products.”

That’s the case behind the first US single-equity ETFs. AXS Investments launched eight such funds last week with expense ratios of 1.15%, within days of SEC Chair Gary Gensler saying such products “present particular risk” in a press call. Gensler’s warning followed a call from Commissioner Caroline Crenshaw for the agency to adopt new rules.

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