I urge you NOT to restrict ordinary investors from trading leveraged and inverse ETFs for the following reasons:
1. Inverse and inverse leveraged ETFs are often the only vehicles available to ordinary investors to hedge their cash and retirement accounts in a down market, or even to profit from down markets. Wealthy investors have many means to do this. Taking these products away from ordinary investors puts them at an unfair disadvantage.
2. Leveraged ETFs provide a useful means for ordinary investors with cash and retirement accounts to profit from short term moves in various indices, sectors and industry groups.
I understand the risks associated with these ETFs and I'm in favor of informing those individuals that lack this knowledge. But it is not the role of the government to ban educated investors from these products because they think others are not educated. The more appropriate response is to offer education to those who would benefit from it, and/or have a quick and informative warnings posted on online trade orders before buying these products. Many brokers already do this. This approach empowers people with knowledge. People need to be aware and informed, not banned, especially when they have this knowledge.
There are many investing vehicles that are as volatile or more volatile than inverse and leveraged ETFs which are not banned. This includes many small cap stocks, cryptocurrency, and equity options. The latter is also leveraged, is far more complex than leveraged ETFs and can often be all-win vs all-lose transactions. Since these instruments are not banned, there is no justification for the government to selectively target ordinary citizens who find its useful to use inverse and leveraged ETFs, especially for short term transactions and/or hedging. Doing so puts them at a disadvantage compared to wealthy investors who have other means to accomplish similar goals.
Finally, my experience in trading is that leveraged ETFs are not the key problem that ordinary investors like myself face. I've experienced greater losses from manipulations like short sellers releasing extremely negative reports on stocks only to find out later that these reports are largely falsified, but the panic they instill does the job for the short seller. If the government wants to help ordinary investors they should regulate these sort of market manipulations because the ordinary investor has no tools to protect themselves from this sort of manipulation. In contrast, we have the tools to understand leveraged ETFs and to use them as appropriate.
Barry Forman Comment On Regulatory Notice 22-08
I urge you NOT to restrict ordinary investors from trading leveraged and inverse ETFs for the following reasons:
1. Inverse and inverse leveraged ETFs are often the only vehicles available to ordinary investors to hedge their cash and retirement accounts in a down market, or even to profit from down markets. Wealthy investors have many means to do this. Taking these products away from ordinary investors puts them at an unfair disadvantage.
2. Leveraged ETFs provide a useful means for ordinary investors with cash and retirement accounts to profit from short term moves in various indices, sectors and industry groups.
I understand the risks associated with these ETFs and I'm in favor of informing those individuals that lack this knowledge. But it is not the role of the government to ban educated investors from these products because they think others are not educated. The more appropriate response is to offer education to those who would benefit from it, and/or have a quick and informative warnings posted on online trade orders before buying these products. Many brokers already do this. This approach empowers people with knowledge. People need to be aware and informed, not banned, especially when they have this knowledge.
There are many investing vehicles that are as volatile or more volatile than inverse and leveraged ETFs which are not banned. This includes many small cap stocks, cryptocurrency, and equity options. The latter is also leveraged, is far more complex than leveraged ETFs and can often be all-win vs all-lose transactions. Since these instruments are not banned, there is no justification for the government to selectively target ordinary citizens who find its useful to use inverse and leveraged ETFs, especially for short term transactions and/or hedging. Doing so puts them at a disadvantage compared to wealthy investors who have other means to accomplish similar goals.
Finally, my experience in trading is that leveraged ETFs are not the key problem that ordinary investors like myself face. I've experienced greater losses from manipulations like short sellers releasing extremely negative reports on stocks only to find out later that these reports are largely falsified, but the panic they instill does the job for the short seller. If the government wants to help ordinary investors they should regulate these sort of market manipulations because the ordinary investor has no tools to protect themselves from this sort of manipulation. In contrast, we have the tools to understand leveraged ETFs and to use them as appropriate.