Christopher Sheridan Comment On Regulatory Notice 22-08
Christopher Sheridan
N/A
Members of FINRA,
Leveraged and inverse ETFs are of great importance to me
and I strongly object to any new restrictions on the usage of these investment vehicles.
I presume that the potential new rules are motivated by the beliefs that 1) these funds are excessively risky and 2) without the new rules, investors will not understand the risks. I dispute both premises. The risks are already documented in the prospectuses, which investors are expected to
read and understand. Moreover, the funds are no riskier than alternatives such as options and small-cap stocks, which can be traded without a qualification process.
I must point out that leveraged funds can actually REDUCE the risk in a portfolio, by reducing the amount that must be invested to achieve some goal, and that is how I use them. What has greater risk short-term: an investment of some amount in QQQ, or an investment of one-third as much in TQQQ? They are equivalent positions in short-term profit potential, but in the event of a 50% decline in QQQ, the TQQQ investor loses less money, even if TQQQ goes to zero. If investments like TQQQ become unavailable, we will lose this ability to de-risk our portfolios.
I therefore urge you to give serious consideration to the arguments above, and to not place new restrictions on the usage of these investment vehicles.
Christopher Sheridan Comment On Regulatory Notice 22-08
Members of FINRA,
Leveraged and inverse ETFs are of great importance to me
and I strongly object to any new restrictions on the usage of these investment vehicles.
I presume that the potential new rules are motivated by the beliefs that 1) these funds are excessively risky and 2) without the new rules, investors will not understand the risks. I dispute both premises. The risks are already documented in the prospectuses, which investors are expected to
read and understand. Moreover, the funds are no riskier than alternatives such as options and small-cap stocks, which can be traded without a qualification process.
I must point out that leveraged funds can actually REDUCE the risk in a portfolio, by reducing the amount that must be invested to achieve some goal, and that is how I use them. What has greater risk short-term: an investment of some amount in QQQ, or an investment of one-third as much in TQQQ? They are equivalent positions in short-term profit potential, but in the event of a 50% decline in QQQ, the TQQQ investor loses less money, even if TQQQ goes to zero. If investments like TQQQ become unavailable, we will lose this ability to de-risk our portfolios.
I therefore urge you to give serious consideration to the arguments above, and to not place new restrictions on the usage of these investment vehicles.