Comments: As both an ETF investor and ETF industry executive, I'm alarmed at FINRA's latest regulatory notice 22-08, which has major implications for both the ETF marketplace and the investing public.
It's not in the public's best interest for FINRA to deliberately limit investment choices or to impose fettered obstacles that intimidate and restrict the retail public's investment decision making or access to product solutions. Any such move in that perilous direction runs counter to the spirit of free capital markets. This is especially true if such moves are done under the overzealous pretense of adding more "investor protections."
The investing public doesn't need any more "protections." What they really need is more education and a grown-up view. And that should start with the full understanding that each investor is fully responsible for the results (good or bad) of their investment decisions.
Training the public to blame the financial services industry for their own self-inflicted mistakes or for poor outcomes is not something FINRA should be actively encouraging. The public already has enough puke-worthy goading from eager plaintiff securities lawyers as it is.
If there's area where FINRA can improve, as it pertains to leveraged and inverse ETFs, I believe it's with the naming or labeling of these products. How?
I believe that industry wide uniformity in how these ETF products are named would go a long way toward better investor education and protection.
For example, all funds that use two or three times daily leverage in any direction (long or short) could be required to name the amount of leverage and the goal in the fund's name.
For example, ETFs that label themselves as Ultra or Ultra Pro ETFs, tell us nothing about the fund's leverage point or stated goal.
A better approach would be to have such funds indicate this critical data in a uniform manner that is setforth industry wide.
For example, all funds with 200% daily long leverage would be required to have the words "2x Daily Long Leverage" attached to their ETF's name.
Likewise, all funds with 200% daily inverse leverage would be required to have the words "2x Daily Opposite or Inverse Leverage" attached to their ETF's name.
From the public's perspective, having uniformity might help avert investor confusion. This is particularly true of leveraged and inverse ETFs that make no use of their stated goal or leverage point in their existing fund names. Think about it this way: If it's confusing for even industry veterans to discern what an ETF does by how it's labeled, then it's likely to be confusing for the investing public.
Beyond what I've explained, FINRA should not impose any further regulatory burdens on ETF firms that offer leveraged and inverse funds. Doing so could trigger unwanted consequences of a) less choices for investors, b) even higher ETF/fund costs, and c) more bureaucracy. Nobody, including the public, wants that.
For far too long, the financial services industry has become an over-regulated cesspool that is under-policed. Enforcing existing rules vs. creating more rules that are unenforceable is the better course.
Rather than inventing "rule enhancements" I believe FINRA's energy is best spent with encouraging ETF firms to allocate adequate resources towards investor education. If FINRA wants to provide these firms with guidelines as to what it deems "adequate," so be it.
Thanks for your attention to this matter and I wish you the best of success.
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Ronald DeLegge Comment On Regulatory Notice 22-08
Comments: As both an ETF investor and ETF industry executive, I'm alarmed at FINRA's latest regulatory notice 22-08, which has major implications for both the ETF marketplace and the investing public.
It's not in the public's best interest for FINRA to deliberately limit investment choices or to impose fettered obstacles that intimidate and restrict the retail public's investment decision making or access to product solutions. Any such move in that perilous direction runs counter to the spirit of free capital markets. This is especially true if such moves are done under the overzealous pretense of adding more "investor protections."
The investing public doesn't need any more "protections." What they really need is more education and a grown-up view. And that should start with the full understanding that each investor is fully responsible for the results (good or bad) of their investment decisions.
Training the public to blame the financial services industry for their own self-inflicted mistakes or for poor outcomes is not something FINRA should be actively encouraging. The public already has enough puke-worthy goading from eager plaintiff securities lawyers as it is.
If there's area where FINRA can improve, as it pertains to leveraged and inverse ETFs, I believe it's with the naming or labeling of these products. How?
I believe that industry wide uniformity in how these ETF products are named would go a long way toward better investor education and protection.
For example, all funds that use two or three times daily leverage in any direction (long or short) could be required to name the amount of leverage and the goal in the fund's name.
For example, ETFs that label themselves as Ultra or Ultra Pro ETFs, tell us nothing about the fund's leverage point or stated goal.
A better approach would be to have such funds indicate this critical data in a uniform manner that is setforth industry wide.
For example, all funds with 200% daily long leverage would be required to have the words "2x Daily Long Leverage" attached to their ETF's name.
Likewise, all funds with 200% daily inverse leverage would be required to have the words "2x Daily Opposite or Inverse Leverage" attached to their ETF's name.
From the public's perspective, having uniformity might help avert investor confusion. This is particularly true of leveraged and inverse ETFs that make no use of their stated goal or leverage point in their existing fund names. Think about it this way: If it's confusing for even industry veterans to discern what an ETF does by how it's labeled, then it's likely to be confusing for the investing public.
Beyond what I've explained, FINRA should not impose any further regulatory burdens on ETF firms that offer leveraged and inverse funds. Doing so could trigger unwanted consequences of a) less choices for investors, b) even higher ETF/fund costs, and c) more bureaucracy. Nobody, including the public, wants that.
For far too long, the financial services industry has become an over-regulated cesspool that is under-policed. Enforcing existing rules vs. creating more rules that are unenforceable is the better course.
Rather than inventing "rule enhancements" I believe FINRA's energy is best spent with encouraging ETF firms to allocate adequate resources towards investor education. If FINRA wants to provide these firms with guidelines as to what it deems "adequate," so be it.
Thanks for your attention to this matter and I wish you the best of success.