I am a small-account retail trader who frequently makes use of things like index and stock options and leveraged ETFs, and my comments are made from that admittedly limited perspective. A couple points.
1) Capital requirements are undemocratic and unjustifiable. Despite FINRA's attempts to close as many doors to the small retail trader as possible, trading remains a means to financial independence for many. However, the pattern day trader rule continues to prevent many from realizing that independence. I know you don't believe the opposite, because that would be absurd, but there is nothing about having or not having capital that results in the possession of intelligence about finance, trading, investment, or, for that matter, anything else. Again, I know no one reading this actually believes that capital creates understanding, so the reason for the existence of the pattern day trading rule, or the introduction of new capital requirements in other areas of the market, is obscure. There is certainly no broader 'social' justification either: If someone's 5K portfolio blows up, the market doesn't blink. When Lehman Brothers or Bill Hwang blows up, everyone's passive investment portfolios are taking losses. Introducing new capital requirements for supposedly 'complex' instruments is ridiculous.
2) Many of the instruments at issue here really are not difficult to understand. The supposed complexity of their risks is a non-issue. (Margin requirements on leveraged funds or long options, for example, should remove any stench of a concern there. The barriers to selling naked calls are fairly stringent as it is, and put-selling already imposes margin requirements that make unfathomed losses impossible.) If having retail click "approve" on some form acknowledging risks of certain instruments would make FINRA would feel better, fine. Make a form. Have us click it. We can do the clicking.
3) There is obviously a liberty interest here which you are not unaware of. There ought to be some fairly clearly definable countervailing interest in the event that you move to impose restrictions on the availability of certain trading instruments to those of us who don't have lobbyists in your ears. In light of the last two points, I just can't think of one. The analogy to a seatbelt law is imprecise because the equivalent of not wearing a seatbelt here includes having access to the means of financial independence. There is no substantive 'good' in not wearing a seatbelt. There are many substantive goods in being able to trade and invest in derivatives. There are risks, sure, but (see the previous point) they are not difficult to understand.
4) Many of the products that you are considering making unavailable to us are used for purposes of things like low-cost hedging. Removing these comes at a cost to the little people. Asking that access to certain instruments not be limited or removed is not like asking for guns 'because muh freedom'. The request is joined to an actual purpose and good.
If you want to introduce more paperwork, I don't see a huge issue. I think it would be silly and a waste of time and resources, but I don't share your concerns or worries, and I don't carry the big stick here either. On behalf of the odd-lots crew, I would humbly request, however, that you not create capital requirements for trading or investing in any product, or that you create barriers to entry that small-timers could not penetrate.
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Erick J. Comment On Regulatory Notice 22-08
I am a small-account retail trader who frequently makes use of things like index and stock options and leveraged ETFs, and my comments are made from that admittedly limited perspective. A couple points.
1) Capital requirements are undemocratic and unjustifiable. Despite FINRA's attempts to close as many doors to the small retail trader as possible, trading remains a means to financial independence for many. However, the pattern day trader rule continues to prevent many from realizing that independence. I know you don't believe the opposite, because that would be absurd, but there is nothing about having or not having capital that results in the possession of intelligence about finance, trading, investment, or, for that matter, anything else. Again, I know no one reading this actually believes that capital creates understanding, so the reason for the existence of the pattern day trading rule, or the introduction of new capital requirements in other areas of the market, is obscure. There is certainly no broader 'social' justification either: If someone's 5K portfolio blows up, the market doesn't blink. When Lehman Brothers or Bill Hwang blows up, everyone's passive investment portfolios are taking losses. Introducing new capital requirements for supposedly 'complex' instruments is ridiculous.
2) Many of the instruments at issue here really are not difficult to understand. The supposed complexity of their risks is a non-issue. (Margin requirements on leveraged funds or long options, for example, should remove any stench of a concern there. The barriers to selling naked calls are fairly stringent as it is, and put-selling already imposes margin requirements that make unfathomed losses impossible.) If having retail click "approve" on some form acknowledging risks of certain instruments would make FINRA would feel better, fine. Make a form. Have us click it. We can do the clicking.
3) There is obviously a liberty interest here which you are not unaware of. There ought to be some fairly clearly definable countervailing interest in the event that you move to impose restrictions on the availability of certain trading instruments to those of us who don't have lobbyists in your ears. In light of the last two points, I just can't think of one. The analogy to a seatbelt law is imprecise because the equivalent of not wearing a seatbelt here includes having access to the means of financial independence. There is no substantive 'good' in not wearing a seatbelt. There are many substantive goods in being able to trade and invest in derivatives. There are risks, sure, but (see the previous point) they are not difficult to understand.
4) Many of the products that you are considering making unavailable to us are used for purposes of things like low-cost hedging. Removing these comes at a cost to the little people. Asking that access to certain instruments not be limited or removed is not like asking for guns 'because muh freedom'. The request is joined to an actual purpose and good.
If you want to introduce more paperwork, I don't see a huge issue. I think it would be silly and a waste of time and resources, but I don't share your concerns or worries, and I don't carry the big stick here either. On behalf of the odd-lots crew, I would humbly request, however, that you not create capital requirements for trading or investing in any product, or that you create barriers to entry that small-timers could not penetrate.