The idea of putting restrictions on Inverse/Leveraged securities is just a bad idea. 1) These instruments are not that complicated - people can understand them....Typically they are based on indexes (e.g., 2X SPX etc.), that's easier to understand than the inner-workings of any individual company! 2) FINRA, I believe, already requires brokers to display warnings - that's good enough. A warning that these instruments are different is what is needed and that makes good sense. Restricting trading on these by FINRA makes no sense. 3) By restricting trading on these instruments, the instruments (and especially options on them) will have reduced liquidity. That will not improve the situation, it will make it worse! Any supposed risks in these instruments will be increased as liquidity decreases.
John Elliott Comment On Regulatory Notice 22-08
The idea of putting restrictions on Inverse/Leveraged securities is just a bad idea. 1) These instruments are not that complicated - people can understand them....Typically they are based on indexes (e.g., 2X SPX etc.), that's easier to understand than the inner-workings of any individual company! 2) FINRA, I believe, already requires brokers to display warnings - that's good enough. A warning that these instruments are different is what is needed and that makes good sense. Restricting trading on these by FINRA makes no sense. 3) By restricting trading on these instruments, the instruments (and especially options on them) will have reduced liquidity. That will not improve the situation, it will make it worse! Any supposed risks in these instruments will be increased as liquidity decreases.