I am writing to express my fear and displeasure in relation to the regulations being considered by FINRA that would prevent investors like myself from accessing products like leveraged ETFs.
I have worked for a decade in the financial industry designing systematic financial products and am a CFA charterholder.
I, like many others, have held positions in leveraged investments for years and they are a very important part of my investment strategy.
We fully understand the behavior and risks associated with these products - for example a 'daily 2x leveraged S&P 500 ETF' is very simple to understand - you simply receive roughly 2x the daily return of the S&P 500.
Requirements like 'high net worth' could preclude sophisticated, knowledgable investors like myself from accessing products that we should be free to invest in.
Retail/individual investors have a far greater understanding of financial markets, and a far greater level of activity, than in previous decades - to the point where a substantial portion of the daily volume traded in US large cap stocks is indeed traded by retail investors (this % could be as much as one-third, varying over time).
These investors deserve the ability to make their/our own decisions as to what products we invest in. There is a huge shift going on in financial markets where companies are looking to cater to retail investors - providing products previously only available to institutional investors & wealthy individuals - and deservedly so. This shift is sensible, justified and is not going to be reversed. If regulators pass rules like the ones being discussed here, it will be an irritating bump in the road for investors like me who will be forced to go and source similar exposures from different places.
Another important factor here is the timing: the equity market is significantly down during 2022; if were are forced to divest our positions, you will be forcing retail investors to take a significant loss on our investments (in the case of leveraged long ETFs).
It remains extremely important for the regulator to ensure fair treatment of individual investors - and in this particular case (leveraged and inverse ETFs), to restrict our access is unjustified and unfair.
To put numbers on this: the volatility of a 2x leveraged S&P 500 investment is significantly lower than a holding of certain commodities or single stocks or bitcoin; if you are going to outlaw investments based on risk/volatility, then there are far more appropriate places to look than a simple 2x leveraged S&P 500 ETF
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Samuel Cherkas Comment On Regulatory Notice 22-08
Dear Sir or Madam,
I am writing to express my fear and displeasure in relation to the regulations being considered by FINRA that would prevent investors like myself from accessing products like leveraged ETFs.
I have worked for a decade in the financial industry designing systematic financial products and am a CFA charterholder.
I, like many others, have held positions in leveraged investments for years and they are a very important part of my investment strategy.
We fully understand the behavior and risks associated with these products - for example a 'daily 2x leveraged S&P 500 ETF' is very simple to understand - you simply receive roughly 2x the daily return of the S&P 500.
Requirements like 'high net worth' could preclude sophisticated, knowledgable investors like myself from accessing products that we should be free to invest in.
Retail/individual investors have a far greater understanding of financial markets, and a far greater level of activity, than in previous decades - to the point where a substantial portion of the daily volume traded in US large cap stocks is indeed traded by retail investors (this % could be as much as one-third, varying over time).
These investors deserve the ability to make their/our own decisions as to what products we invest in. There is a huge shift going on in financial markets where companies are looking to cater to retail investors - providing products previously only available to institutional investors & wealthy individuals - and deservedly so. This shift is sensible, justified and is not going to be reversed. If regulators pass rules like the ones being discussed here, it will be an irritating bump in the road for investors like me who will be forced to go and source similar exposures from different places.
Another important factor here is the timing: the equity market is significantly down during 2022; if were are forced to divest our positions, you will be forcing retail investors to take a significant loss on our investments (in the case of leveraged long ETFs).
It remains extremely important for the regulator to ensure fair treatment of individual investors - and in this particular case (leveraged and inverse ETFs), to restrict our access is unjustified and unfair.
To put numbers on this: the volatility of a 2x leveraged S&P 500 investment is significantly lower than a holding of certain commodities or single stocks or bitcoin; if you are going to outlaw investments based on risk/volatility, then there are far more appropriate places to look than a simple 2x leveraged S&P 500 ETF