Hourly reset? 9/14/26

0:00BETF Edge Podcast is sponsored by InvescoQQQ. Let's rethink possibility. Invesco 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 Chiu. Retail Investors demand for new products as 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 Sylvie Gowonsky, the CIO and co-founder at Define's ETFs, and Justin Shaq, Rosenblatt Securities 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 see at some point,

1:00if 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 at 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 Define's 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 training day, they reset at the end of each hour. So you'll have six resets or so per day. They reset hourly. And so why do this?

2:01The reason why is because for the last decades or so, Define's has just been watching levered and inverse traders and monitoring their behaviors and looking at the holding periods. And what was notable to us is that the two X-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, a drug discovery announcement. You kind of saw that happen with Moderna the other day. And there's no product out there that actually captures the compounding hour to hour or for that hour. And so 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 are very much out there in the market and exist. And we're doing the top names like the Navidia, Tesla, Meta, Microsoft, we fall for 16 of them or so. And it's just for these traders looking

3:02for that precise exposure. That precise exposure, if I can 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 manage around 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 were levered in burst funds. You're talking about 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 the day could be interested in trading it for an hour. You know, we're not saying that every trader's going to come in and, you know, hold it for the six hour period.

4:05Some 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 are potentially more so than a levered ETF that rebalances 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 their first 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 just and 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?

5:11Do 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 said how 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, we're leveraged and 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, ultra short type products. Now, the markets are very interconnected, right?

6:12So 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 I mean, she should 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 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 maybe 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,

7:14that security can get halted. So we have a way to make sure that 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 SEC, the CFTC, 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 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 in to 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

8:14tend to be more permissive, they tend to be more hands-off, free market oriented and say, look, as long as the customer understands, and there's 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 Bogl, right? 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, of 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 execute it 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,

9:15they 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 business, the industry are doing with regard to putting out new product, you mentioned, and you and Justin Boe, 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 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, 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 2026, the amount of funds that have launched so far this year is over 1,000, and that was the,

10:18I think there were about 1,100 that launched the entire year last year, right? So we're at like a 50% increase there. What's changed in ETFs? 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, especially around AI, and anything that has to do with AI, AI infrastructure, and its cousins, like the quantum, the AI power, the capacitors, all of these different themes have taken off very, very quickly. 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 market the product, and teach about the theme, but ETFs have been moving so quickly now that, 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, 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,

11:19and it's kind of the regulators' bless funds to go effective and can stop funds, everything remains the same. What I will say that has changed is that, if you have a good idea as an ETF issuer, 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 issuer, so it's really like who has the most disruptive idea, can get it to be filed in the quickest amount of time, 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 mover advantage, something that you have to pay attention to as an ETF provider, a sponsor of some of these funds? You mentioned 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,

12:19if 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 bitten by that at the finance, right? So you definitely, if you have an idea, and you have high conviction as an ETF, I sure you want to be first to market, you have the best chance of success, particularly for thematic funds. I think with leverage funds, you've seen that in the case of SpaceX, there are several leverage 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 the Maddoke T.S., 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 or inverse type products coming out in the future, how much do you have to factor in what you know

13:21and 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 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 six billion, not that long ago, 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 if somebody is trading one of those underlying stocks

14:23as part of an institutional portfolio, someone sitting on the trading desk really wants to know, 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, OK, 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 think back to the first wave of online brokerage in the late 90s and early odds and the dot com craze. And when that bubble burst, a lot of those people had opened up e-trade and a merit trade 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.

15:23We 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 equity markets, but a whole host of other risky instruments, whether it's sportsbooks, 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

16:25to sort of get ahead or try to get ahead and 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 at defiance, is it safe to say that to Justin's 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 ETFs. Yeah, absolutely. And Justin made a lot of great points and gave us a lot of good data there. I think that what happened during the pandemic is that there were always sophisticated traders in the market that were trading 2x-levard funds, whether they were retail hedge funds or institutional. But I think what happened during the pandemic is that a lot of people were at home

17:29and for the first time became interested in trading. They became interested in how to outperform some of the types of returns that they were seeing just having passive allocations. And for example, 401k fund and some of them were younger and looking to perhaps add different types of tech and higher beta plays and slightly more risk and diversification to their portfolios. And they learned how to trade. They learned about markets. And I think this coupled with the amount of information out there, whether it's through all of you at CMBC educating traders and the retail community on stocks and markets and things like this, whether it's through YouTube and X and a lot of the spaces that are out there now that are 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 levered inverse stuff, the tradeable 2x products and things like this, we feel such a responsibility to educate. We don't ever go out there and try to pitch these products.

18:31We try to really educate and put it out there and explain how they work and get people comfortable with them and our competitors do the same thing to their credit. And I think that this, 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 really benefited from that. And they've embraced the singles, the levered funds, the index funds and 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 out there in a way that it's never been before. And it's really a sweet spot to be in ETFs. It's this great wrapper now that actually serves its purpose when you think about what's going on in the world again with AI and some of these derivatives of AI. It's a way to get the first-fight exposure to a sector that you can't trade yourself. And then the other thing I'll say is that in recent years, it's really been the retail money that's the smart money. Now the institution's want to know what the retail trader is doing

19:32and kind of following their lead. So it's certainly stepped up the knowledge and 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. Is these products, if they do get approved, they're made available to everybody. 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. 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 how do people do with not just products like these, but how does that retail investor that came in in 2019 and 2020

20:32and stuck with things, stuck with a really, passed a really tough 2022 and is still really engaged as they embrace these really risky products, how are they doing? Because a lot of this stuff, 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 in 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.

21:35Sylvia Jablonsky, the Chief Investment Officer and co-founder at Define's 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 Define's 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

22:38investors have talked to us about. And the idea here is that, so we followed for 16 hourly reset, two times leveraged ETFs on some stocks like the video Tesla, Microsoft, things like that and some indices, things like this. So instead of resetting a 2x target once a day at the closed, these basically reset every hour. So six or so times during the trading day. And why we did this is we talked to so many of our largest traders at the 2x daily funds and they've said, we love the 2x daily ETFs, but markets move on such a short term. Now there's so many sharp catalysts, there's an earnings headline, there's a Fed announcement, there's a viral tweet and sometimes the days trend or the momentum for the day happens in the course of an hour or two hours or three hours and not beyond the trading day. Meaning like we see this with earnings all the time, right? Like a stock might rip at the market open and kind of stay there for a couple of hours or two

23:39and then by the end of the trading day, it's kind of back to somewhere, reverse to some kind of being, right? A little bit higher than started, but lower than the days 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 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 gonna go two into the weeds because this could be a master's thesis on how kind of, you know, 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 yet or construct ETFs like that?

24:40And 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, then 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 index that you're tracking or the single stack 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,

25:42it'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 swap, it can be done with options. And it's really the same thing, you know, so for every $2 of performance, you know, you basically get times 2, 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 the 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, right? 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 ETF that rebounds at the end of the day, you hold it for a couple of days and there's range of volatility, you're probably gonna do worse than 2x, right?

26:42And 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 leverage funds that we're 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, first of all, we should also say as of this podcast taping, these products are not live. You have applied, 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 products to market

27:45from a regulatory standpoint. Yeah, I mean, I think our, so from a product perspective, we thought that these products were in line with the 2x daily resetting ETFs, where we understand what the maximum current maximum permitted leverage is out there through, through this rule and ETF for and the information is out there. So it's a 2x product that's in line with the 2x products that already exist. The difference is the hourly frequency, to our knowledge there is an limit on how many times you can rebalance a fund throughout the day. But ultimately, it'll be kind of up to the regulator to give feedback, ask questions, and of course we cooperate and collaborate and 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 CTFs that are already out there. And then how do we think about it? The biggest thing for us is just making sure

28:46the education is out there, making sure that the correct investors are using it and investors understand the risks and the benefits associated with these products. So our mindset of an ETF assure is exactly the same, right? Just make sure we explain how they work fairly, educate 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 brought up the idea of education and just how much the types of people will be using this type of product to gain the outcomes that they want to. What my final question for you here, I'd like to ask you a little bit about, at what types of investors are you trying to target for this type of product? Is it predominantly a retail investor base that you're 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.

29:47But 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 these are investment vehicles basically for very active sophisticated investors, whether they're institutional or they're retail-like institution. It's really interesting because a lot of the times will be talking to a retail person and not retail person as a trader at a hedge fund. And there's different types of retail traders, of course. But this is really a tool for active sophisticated investors 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 Amphabetic Exposure means in both trending markets and volatile markets and things like this. So I would just say sophisticated short-term traders

30:49looking to trade on short-term intraday market catalysts. All right, well, Sylvia Giblonzki, CIO and co-founder of Define's 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 ETF Edge. C-M-B-C dot com. Over the last few decades, technology has transformed our world in amazing ways. Through it all, Investco QQQ ETF has connected investors to the forefront of innovation. Access the future today with InvestcoQQQ, let's rethink possibility. There are risks when investing in ETFs, including possible loss of money. ETF risks are similar to those of stocks. Investments in the tech sector are subject to greater risk and more volatility than more diversified investments. The NASDAQ 100 index includes the one-havid largest non-financial companies listed on the NASDAQ. An investment cannot be made directly to an index. Before investing, consider the funds investment objectives, risks, charges, and expenses.

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