Operational Process: Here's a simplified overview of how the $2$x leveraged ETF would operate:

Initial Capital: The ETF issuer starts with an initial pool of capital, which they can use to invest in financial derivatives and other assets to track the S&P $500$ index.

TRS Agreement: The ETF issuer enters into Total Return Swap agreements with counterparties $($usually large financial institutions$).$ These agreements stipulate that the counterparty will pay the ETF issuer the total return on the S&P $500$ index daily.

Collateral: To secure the TRS agreements and meet regulatory requirements, the ETF issuer may need to post collateral, which can be in the form of cash or other high$-$quality securities$.$ This collateral helps protect the counterparty in case the ETF issuer defaults.

Daily Rebalancing: The ETF issuer will continuously adjust its position in the derivatives to ensure it maintains $2$x leverage. This typically involves reinvesting the daily returns from the S&P $500$ index and adjusting the derivatives position

Tracking: The ETF's performance is tracked daily, aiming to achieve $2$x the daily returns of the S&P $500$ index. If the index goes up $1\%,$ the ETF aims to go up $2\%,$ and vice versa.

Risks and Considerations:

Leverage Risk: Leveraged ETFs are designed for short$-$term trading and can be riskier than traditional ETFs. They are subject to compounding, which means that returns over longer periods may not precisely correspond to $2$x the benchmark's returns.

Costs: Managing leveraged ETFs, including TRS agreements and collateral, can be costly$,$ and these costs may erode returns.

Tracking Error: Achieving the target leverage can be challenging due to market fluctuations and daily rebalancing.

Counterparty Risk: The ETF is exposed to the credit risk of the counterparty providing the TRS$.$

Explanation:

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