BMO's 3x Japan notes restore a multiple Direxion shut in 2020
Bank of Montreal's JPNU and JPND, 3x long and -3x short notes on the iShares MSCI Japan ETF, listed August 20, 2026 and held $5.4 million and $4.5 million as of Thursday, September 17.
Direxion's Daily MSCI Japan Bull 3X Shares, JPNL, stopped trading on October 16, 2020 and liquidated a week later. Rafferty Asset Management, the adviser, said it could not operate the funds economically because they had not attracted enough assets. The 3x multiple is back on Cboe BZX. It is not a fund.
JPNU and JPND are unsecured, unsubordinated notes of Bank of Montreal, issued with REX Shares under the MicroSectors brand. MicroSectors describes an exchange-traded note as a debt obligation of the issuing bank that does not hold underlying assets; repayment depends on Bank of Montreal's credit. A fund at this size has a portfolio to run. These notes do not. The credit sits with the buyer.
Each session they reset to 3x or -3x the daily share-price move of the iShares MSCI Japan ETF EWJ, before fees and financing. Cboe listed them Thursday, August 20. They mature on July 31, 2046.
A 3x bet on EWJ's closing price
The notes are linked to the VettaFi Japan Equity Fund-Tracking Index, ticker JAPAN, a total-return index that tracks EWJ. That ETF tracks the MSCI Japan Index of large- and mid-cap Japanese stocks. As of Friday it had 167 holdings. Mitsubishi UFJ Financial Group was 4.7% of the book, Toyota Motor 3.5%.
Industrials, technology, and financials sit well ahead in EWJ
- 23%
- 22%
- 19%
- 12%
- 9.3%
- 5.4%
- 3.5%
- 2.9%
- 1.8%
- 1.0%
The ETF is up 20.4% year to date, total return, in Friday morning trading, unhedged to the yen.
Three layers sit under the 3x label: Japanese stocks, the iShares fund's own 0.49% expense ratio and any gap between its market price and net asset value, and the note mechanics. MicroSectors says the index follows the ETF's closing market price, not its NAV, so a premium or discount in the iShares fund can pass through. Holders own BMO's promise, and they forgo dividends except as the index already reflects them. The notes pay no interest.
JPNU, the long note, starts at a $25 principal. It deducts a 0.95% annual investor fee and a financing charge of the prime loan rate plus 3.00% on twice the note's value, the borrowed slice of a 3x position. Prime was 6.75% as of Wednesday, September 16. The annual drag at those levels is 20.45%.
Financing is 19.5% a year on JPNU at Wednesday's prime
JPND, the short note, starts at $50. It takes the same 0.95% fee and accrues daily interest at the federal funds effective rate minus 3.00%. The effective federal funds rate was 3.63% that Wednesday, a 0.63% credit against the fee, for a net annual drag of 0.32%. A one-day rise of about 33% in the reference can take the short note to zero; if closing indicative value hits zero, it stays zero.
Holders who want BMO to redeem must present at least 25,000 notes. Below that size, the only exit is the open market.
BMO's launch materials are blunt about holding period. The notes are "daily trading tools for sophisticated investors," "not intended to be 'buy and hold' investments," and "not intended to be held to maturity." Over any window longer than one session, compounding can pull results far from 3x the index. BMO can redeem the notes after issuance and can extend maturity by as many as two five-year periods.
The 2x ETFs never scaled
The iShares MSCI Japan ETF ran $23.3 billion as of Tuesday, September 15, and dates to March 1996. Average turnover is about 4.8 million shares a day.
The leveraged Japan ETFs that survived are a different size. ProShares Ultra MSCI Japan EZJ, the 2x daily fund, launched June 2, 2009 and held $11.9 million as of Friday. ProShares UltraShort MSCI Japan EWV, the -2x daily fund, launched November 6, 2007 and held $4.3 million. ProShares still describes EZJ as the only ETF targeting 2x the daily return of the MSCI Japan Index, and EWV as the only -2x. Both get there with swaps on the iShares fund, not by building a separate Japan book.
A month after listing, average volume was 1,264 shares a day in JPNU and 1,333 in JPND. That is the same neighborhood the 2x ETFs occupy after a decade and a half. The unlevered fund is more than 4,300 times the long note.
The 0.95% on the notes is an investor fee, not an ETF expense ratio, and it sits on top of financing. EZJ shows a 2.91% gross expense ratio and a 1.17% net ratio, with a contractual waiver through September 30, 2026 and 0.22% of acquired-fund fees inside that net. EWV shows 2.51% gross and 0.95% net, same waiver date. Eighteen U.S. Japan-country ETFs already occupy the unlevered shelf. This launch is a daily 3x note on one of them.
The 25,000-note redemption minimum is about 20 trading days of JPNU's average volume, so the long note trades as a secondary-market claim on Bank of Montreal, at 20.45% a year.
Frequently asked
Are JPNU and JPND ETFs?
No, they are unsecured, unsubordinated notes of Bank of Montreal that hold no underlying assets, so repayment depends on the bank's credit.
What does the long note cost to hold?
A 0.95% annual investor fee plus financing at prime plus three points on twice the note's value, about 20.45% a year at recent rates.
Why is the short note so much cheaper?
JPND accrues interest at the federal funds effective rate minus three points, a credit that offsets most of the fee for a net drag of about 0.32%.
Can holders redeem directly with the issuer?
Only by presenting at least 25,000 notes; below that size the open market is the only exit.