These comments are in regard to FINRA's Regulatory Notice 22-08 request for comments.
I am a non-professional, active investor who monitors and manages my personal portfolio every day. As such, it is important to allow active investors like myself to make their own determination of what products to use at what time to achieve their financial goals. Individual investors, not regulatory agencies, are best qualified to decide their personal risk factors and are perfectly capable of evaluating the characteristics of individual products for their own use. The massive amount of information already required by regulation to be made available to individual investors, along with many commercial trading platforms and excellent analysis tools, mean that individual investors have more than enough resources available to determine the suitability (or unsuitability) of leveraged and inverse investment instruments in their own portfolios. A "one strategy fits all" methodology will at best severely hamper, and at worst destroy trading methods that many investors/traders have successfully used for years.
Leveraged products and options have been a cornerstone of my investing strategy for over a decade now and have provided returns far exceeding other products I have traded. Their high return rate has been essential to achieve the income goals I've sought during that time.
I have not found these leveraged products to be difficult to trade on an active basis as their characteristics are as easy to understand and predict as any non-leveraged product. Without access to such leveraged products my income stream would be critically restricted and would cause severe financial hardship at a time when my investments provide my main source of income.
Leveraged and inverse products are no more "complex" or difficult for investors to understand than "simple" products as all information needed to understand them is readily available. It merely requires some time, dedication and concentration on the part of the individual investor to understand how they work.
Logically, there is no greater risk in leveraged products over non-leveraged as a misunderstanding of either can result in significant portfolio loss; however, leveraged products provide a return potential unmatched by non-leveraged products when handled properly. Forcing all investors onto a "least common ability" path does nothing to help uninformed investors, no matter how they trade, but does remove extremely profitable tools from the hands of those who take the time to do their research and understand the many benefits of leveraged products.
These leveraged products are publicly traded instruments and, as such, should be freely available to all of the public. Just as we have the right to decide what car to buy (fast, slow, large, small, sedan, truck) to suit our own needs, we should also be able to trade whatever public products we wish that suit our own needs. Just as some need a sedan and some need a pickup, some investors' strategy needs simple, so-called "safe" products while others need leveraged or inverse products to achieve their goals, and only the individual investor/trader is in a position to decide which is best for his needs.
Restricting access to certain products based on arbitrary criteria or pressure from large trading firms who wish to have access to such products solely for their own use is unreasonable and unfair to the public whom FINRA is intended to protect. Large firms with large trading staffs and huge financial resources will not be negatively impacted by individual investors using so-called "complex" products on their own.
To put onerous requirements on individuals to pass tests, get special permission to trade certain products or be prevented from trading such products at certain times is grossly unfair. Intelligent investors do not need to be protected from themselves; they participate in the public markets knowing the risks and rewards involved. No amount of oversight will prevent the unprepared or unintelligent investor from making mistakes, but many of us have learned from our mistakes, done our research, and come back to be successful using tools and products that these proposed regulations would make unavailable. Many individual investors use leveraged/inverse products wisely on a daily basis with great success and the proposed criteria would make it impossible to do so in a meaningful way. Requiring oversight from dealers and brokers such as suggested in the RFC will not help the ill-informed and will greatly hurt those who understand these products.
FINRA's own purpose statement says that they exist to "serve as the first line of oversight for the brokerage industry - all at no cost to taxpayers". Restricting the public's access to certain products does nothing for industry oversight and it certainly will end up costing many taxpayers (such as myself) in lost revenue and higher commissions at a time of bad economic conditions and high inflation. Industry oversight does NOT include oversight of individual investors and effectively determining whether or not individuals are qualified to trade certain products according to an arbitrary set of standards.
Investors shouldn't be forced to meet additional requirements to trade certain products as this sets a disastrous precedent that may eventually result in requiring arbitrary levels of "knowledge", net worth or approvals to trade ANY products (every investment is risky). Setting requirements on trading knowledge, techniques and timing completely destroys the concept of a free market and requiring all investors/traders to behave in a predictable, uniform manner will, by definition, make a market unworkable. Investors/traders must be allowed to use different strategies and timings in order for the trading process to work; if everyone is restricted to behaving the same there is no buy/sell market.
In addition, if even a few of the ideas proposed in the Request for Comments section of Notice 22-08 were implemented it may put such a burden on the firms selling these complex products or the brokers we investors deal with that they simply won't offer these products anymore. Additional requirements always mean greater expense on the parts of the sellers or brokers to have to meet those requirements. We, the individual investors, will end up paying the costs of compliance in the form of higher commissions and fees and maybe even losing access to some of these very useful leveraged products. It would be nearly impossible for large brokerages to have to deal with thousands of individual investors in the detailed way most of these RFC questions propose.
In summary, sufficient information is already publicly available for serious investors to educate themselves about these leveraged products and options. Placing the burden of educating investors that haven't done the work themselves onto the brokers and providers won't help the investing public and will only harm those who have put the work into understanding the products they wish to use.
D Wallen Comment On Regulatory Notice 22-08
These comments are in regard to FINRA's Regulatory Notice 22-08 request for comments.
I am a non-professional, active investor who monitors and manages my personal portfolio every day. As such, it is important to allow active investors like myself to make their own determination of what products to use at what time to achieve their financial goals. Individual investors, not regulatory agencies, are best qualified to decide their personal risk factors and are perfectly capable of evaluating the characteristics of individual products for their own use. The massive amount of information already required by regulation to be made available to individual investors, along with many commercial trading platforms and excellent analysis tools, mean that individual investors have more than enough resources available to determine the suitability (or unsuitability) of leveraged and inverse investment instruments in their own portfolios. A "one strategy fits all" methodology will at best severely hamper, and at worst destroy trading methods that many investors/traders have successfully used for years.
Leveraged products and options have been a cornerstone of my investing strategy for over a decade now and have provided returns far exceeding other products I have traded. Their high return rate has been essential to achieve the income goals I've sought during that time.
I have not found these leveraged products to be difficult to trade on an active basis as their characteristics are as easy to understand and predict as any non-leveraged product. Without access to such leveraged products my income stream would be critically restricted and would cause severe financial hardship at a time when my investments provide my main source of income.
Leveraged and inverse products are no more "complex" or difficult for investors to understand than "simple" products as all information needed to understand them is readily available. It merely requires some time, dedication and concentration on the part of the individual investor to understand how they work.
Logically, there is no greater risk in leveraged products over non-leveraged as a misunderstanding of either can result in significant portfolio loss; however, leveraged products provide a return potential unmatched by non-leveraged products when handled properly. Forcing all investors onto a "least common ability" path does nothing to help uninformed investors, no matter how they trade, but does remove extremely profitable tools from the hands of those who take the time to do their research and understand the many benefits of leveraged products.
These leveraged products are publicly traded instruments and, as such, should be freely available to all of the public. Just as we have the right to decide what car to buy (fast, slow, large, small, sedan, truck) to suit our own needs, we should also be able to trade whatever public products we wish that suit our own needs. Just as some need a sedan and some need a pickup, some investors' strategy needs simple, so-called "safe" products while others need leveraged or inverse products to achieve their goals, and only the individual investor/trader is in a position to decide which is best for his needs.
Restricting access to certain products based on arbitrary criteria or pressure from large trading firms who wish to have access to such products solely for their own use is unreasonable and unfair to the public whom FINRA is intended to protect. Large firms with large trading staffs and huge financial resources will not be negatively impacted by individual investors using so-called "complex" products on their own.
To put onerous requirements on individuals to pass tests, get special permission to trade certain products or be prevented from trading such products at certain times is grossly unfair. Intelligent investors do not need to be protected from themselves; they participate in the public markets knowing the risks and rewards involved. No amount of oversight will prevent the unprepared or unintelligent investor from making mistakes, but many of us have learned from our mistakes, done our research, and come back to be successful using tools and products that these proposed regulations would make unavailable. Many individual investors use leveraged/inverse products wisely on a daily basis with great success and the proposed criteria would make it impossible to do so in a meaningful way. Requiring oversight from dealers and brokers such as suggested in the RFC will not help the ill-informed and will greatly hurt those who understand these products.
FINRA's own purpose statement says that they exist to "serve as the first line of oversight for the brokerage industry - all at no cost to taxpayers". Restricting the public's access to certain products does nothing for industry oversight and it certainly will end up costing many taxpayers (such as myself) in lost revenue and higher commissions at a time of bad economic conditions and high inflation. Industry oversight does NOT include oversight of individual investors and effectively determining whether or not individuals are qualified to trade certain products according to an arbitrary set of standards.
Investors shouldn't be forced to meet additional requirements to trade certain products as this sets a disastrous precedent that may eventually result in requiring arbitrary levels of "knowledge", net worth or approvals to trade ANY products (every investment is risky). Setting requirements on trading knowledge, techniques and timing completely destroys the concept of a free market and requiring all investors/traders to behave in a predictable, uniform manner will, by definition, make a market unworkable. Investors/traders must be allowed to use different strategies and timings in order for the trading process to work; if everyone is restricted to behaving the same there is no buy/sell market.
In addition, if even a few of the ideas proposed in the Request for Comments section of Notice 22-08 were implemented it may put such a burden on the firms selling these complex products or the brokers we investors deal with that they simply won't offer these products anymore. Additional requirements always mean greater expense on the parts of the sellers or brokers to have to meet those requirements. We, the individual investors, will end up paying the costs of compliance in the form of higher commissions and fees and maybe even losing access to some of these very useful leveraged products. It would be nearly impossible for large brokerages to have to deal with thousands of individual investors in the detailed way most of these RFC questions propose.
In summary, sufficient information is already publicly available for serious investors to educate themselves about these leveraged products and options. Placing the burden of educating investors that haven't done the work themselves onto the brokers and providers won't help the investing public and will only harm those who have put the work into understanding the products they wish to use.