Defiance files for first fully private company ETF using swaps

Defiance ETFs wants to let you invest in companies before they hit the stock market, no accredited investor status required. The firm is filing to register what it calls a “pre-IPO leaders” ETF, a fund that would invest primarily in swaps linked to private companies, effectively creating the first ETF product built entirely around private market exposure. How swaps make the impossible possible The mechanics here matter. Defiance isn’t proposing to buy actual shares of private companies and stuff them into a fund. That would create an immediate liquidity nightmare, since private shares don’t trade on exchanges and can’t be easily bought or sold on demand. Instead, the fund would use total-return swaps with bank counterparties. Think of a swap as a handshake deal with a bank: the ETF pays the bank a fee, and the bank agrees to pay back whatever return a basket of private companies generates. The ETF never actually owns the underlying shares. It just captures the economic exposure. This is the same synthetic plumbing that Defiance already uses in its leveraged products. Its XOVL ETF, for instance, seeks 200% daily exposure to the ERShares Private-Public Crossover ETF using a similar s...