I know for sure that having specialized rules and red tape for complex leveraged and inverse products does not actually reduce the risk faced by retail investors. Access to leverage can even be used to reduce risk in an overall portfolio, as numerous other commenters have noticed. When implemented as part of a well planned strategy, leveraged and inverse products can provide crucial diversifying exposure without the need for larger sums of capital. I have myself been using these products in this way, and they are an invaluable part of my personal portfolio. Placing barriers in the way of executing well planned strategies that require leveraged products will discourage such behavior. Even in the absence of leveraged and inverse funds, riskier alternatives will always exist, and there is no equivalently high barrier (to the one you are proposing) to stop uninformed traders from purchasing high volatility stocks whose expected volatility and risk of going to 0 exceeds those of many leveraged or inverse products on the market today. Nor should there be, as markets should allow open and free participation to facilitate proper price discovery and allow each participant the right to seek a working strategy. We know the risks of leverage. Please allow us to take these risks, as they can often be used to offset others. I say with confidence that the overall effect of these products' existence is beneficial, and that there should not be additional restrictions on their use. Doing so may even have a counterproductive result if it pushes uninformed investors to directly use derivatives that they do not understand, instead of relying on the leveraged or inverse product to provide exposure.
Anonymous Comment On Regulatory Notice 22-08
I know for sure that having specialized rules and red tape for complex leveraged and inverse products does not actually reduce the risk faced by retail investors. Access to leverage can even be used to reduce risk in an overall portfolio, as numerous other commenters have noticed. When implemented as part of a well planned strategy, leveraged and inverse products can provide crucial diversifying exposure without the need for larger sums of capital. I have myself been using these products in this way, and they are an invaluable part of my personal portfolio. Placing barriers in the way of executing well planned strategies that require leveraged products will discourage such behavior. Even in the absence of leveraged and inverse funds, riskier alternatives will always exist, and there is no equivalently high barrier (to the one you are proposing) to stop uninformed traders from purchasing high volatility stocks whose expected volatility and risk of going to 0 exceeds those of many leveraged or inverse products on the market today. Nor should there be, as markets should allow open and free participation to facilitate proper price discovery and allow each participant the right to seek a working strategy. We know the risks of leverage. Please allow us to take these risks, as they can often be used to offset others. I say with confidence that the overall effect of these products' existence is beneficial, and that there should not be additional restrictions on their use. Doing so may even have a counterproductive result if it pushes uninformed investors to directly use derivatives that they do not understand, instead of relying on the leveraged or inverse product to provide exposure.