Steven Swernofsky Comment On Regulatory Notice 22-08
Steven Swernofsky
N/A
Dear Sirs:
I submit these comments in opposition to this FINRA Regulatory Notice:
I oppose limitations on use of ETFs that relate to "leveraged" or "inverse" funds. These ETFs are already fully disclosed to the public, and form a crucial part of many investor's plans for investing. Each individual is different; there is no "one size fits all" regulation that is fair, reasonable, and clear.
Each individual investor should be able to decide for themself whether to choose those investments. For example, rather than using broker margin, I am able to use leveraged ETFs to obtain a reasonably small amount of margin without borrowing costs or the risk of a margin call. In the aggregate, restricting use of leveraged and inverse ETFs will negatively affect the liquidity of markets, and negatively affect the ability of investors to choose what investments are individually best for their own personal risk and reward goals.
These ETFs are no more risky, and in most cases are much less risky, than investments in individual stocks (which are clearly allowed) or options (which are clearly allowed). Attempts to regulate use of these ETFs are doomed to failure, as they distort markets and force investors to choose even less clear and more risky alternatives.
The proposed processes to use these ETFs as part of a rational and reasonable investment strategy are too vague and too restrictive to be suited to a robust and free market system. For example, an investor is likely to be quite able to be able to evaluate the value of these ETFs for their personal investment goals, without necessarily having any particular detailed knowledge that a regulator might deem relevant as a "one size fits all" test, and without necessarily meeting any particular requirements for assets or income. In fact, investors who are planning for retirement are likely to be unable to meet any particular requirements for assets or income that a regulator might deem relevant, yet those investments might easily still be the best choice for those investors. This is certainly true for me.
As an experienced investor (I have been investing since my teens and I am in my 60's), I do not need any test, I do not want any test, and I am perfectly capable of evaluating any risks associated with these ETFs. I also do not need to prove my worth to brokers, do not want to do so (and do not want the invasive testing that questions from brokers will involve), and I am perfectly capable of taking the associated risks, just like I am perfectly capable of taking the associated risks of investing in individual stocks, or in options, or in bonds.
The SEC already imposes requirements for investing in private offerings, such as being an "accredited investor". There are strong reasons against creating a complex set of tiers of investors and in what they are allowed to invest. This makes it difficult for investors to determine how they can and should invest, makes it difficult for brokers to comply with regulations, and interferes with the free and liquid flow of capital to its highest and best use.
There are already way too many regulations in place with respect to what choices investors are allowed to make, and when, and how. All that new regulations will do is to reduce the liquidity and the free flow of capital to its highest and best use, make investing decisions difficult and fraught for investors, and create an industry of potentially-rapacious "advisors" who will advise investors to choose those investments that are to the advantage of those advisors (or to the advantage of their broker employers), rather than the investors themselves.
Moreover, this regulation will involve FINRA in many years of attempting to clarify and/or correct misapprehensions with respect to the meaning and scope of the regulation. Investors will be uncertain, particularly at a time when many investors are about to retire and will need the greatest possible flexibility to choose what is best for their individual needs.
Having each investor choose what is best for their individual needs is how our American markets thrive. It is our national policy not to direct how investors must allocate their funds, unlike countries where the market is directed by the government (e.g., China). Moreover, the proposed regulatory notice might easily exceed FINRA's authority and cause the agency to be involved in court proceedings rather than perform its proper mission of protecting the public from unscrupulous brokers.
Again, I strongly disapprove of the proposed regulatory notice, for the described reasons. I also disapprove because the proposed regulatory notice cannot be implemented in a manner that is fair, reasonable, and clear.
I respectfully insist that FINRA consider and respond to each and every point I have made in these comments, as part of a public notice-and-comment process. I respectfully insist that FINRA withdraw the proposed regulatory notice in its entirety.
There is no reason to further interfere in the free markets (1) that make this country a beacon of capitalism, (2) that allow investors to allocate their own capital as they personally see fit and (3) that allow investors their freedom to allocate their property as they require. Moreover, I think FINRA's proposed regulation would have the effect of driving investors to other types of investment that are less well understood and less regulated, such as direct leveraged investment in real estate, futures market investments, or other investments that are clearly less liquid and more risky than leveraged or inverse ETFs.
Disclosure: I am a volunteer arbitrator for FINRA. I have seen foolish mistakes by investors. None of them have ever involved leveraged or inverse ETFs.
Very truly yours,
Steven Swernofsky
Steven Swernofsky Comment On Regulatory Notice 22-08
Dear Sirs:
I submit these comments in opposition to this FINRA Regulatory Notice:
I oppose limitations on use of ETFs that relate to "leveraged" or "inverse" funds. These ETFs are already fully disclosed to the public, and form a crucial part of many investor's plans for investing. Each individual is different; there is no "one size fits all" regulation that is fair, reasonable, and clear.
Each individual investor should be able to decide for themself whether to choose those investments. For example, rather than using broker margin, I am able to use leveraged ETFs to obtain a reasonably small amount of margin without borrowing costs or the risk of a margin call. In the aggregate, restricting use of leveraged and inverse ETFs will negatively affect the liquidity of markets, and negatively affect the ability of investors to choose what investments are individually best for their own personal risk and reward goals.
These ETFs are no more risky, and in most cases are much less risky, than investments in individual stocks (which are clearly allowed) or options (which are clearly allowed). Attempts to regulate use of these ETFs are doomed to failure, as they distort markets and force investors to choose even less clear and more risky alternatives.
The proposed processes to use these ETFs as part of a rational and reasonable investment strategy are too vague and too restrictive to be suited to a robust and free market system. For example, an investor is likely to be quite able to be able to evaluate the value of these ETFs for their personal investment goals, without necessarily having any particular detailed knowledge that a regulator might deem relevant as a "one size fits all" test, and without necessarily meeting any particular requirements for assets or income. In fact, investors who are planning for retirement are likely to be unable to meet any particular requirements for assets or income that a regulator might deem relevant, yet those investments might easily still be the best choice for those investors. This is certainly true for me.
As an experienced investor (I have been investing since my teens and I am in my 60's), I do not need any test, I do not want any test, and I am perfectly capable of evaluating any risks associated with these ETFs. I also do not need to prove my worth to brokers, do not want to do so (and do not want the invasive testing that questions from brokers will involve), and I am perfectly capable of taking the associated risks, just like I am perfectly capable of taking the associated risks of investing in individual stocks, or in options, or in bonds.
The SEC already imposes requirements for investing in private offerings, such as being an "accredited investor". There are strong reasons against creating a complex set of tiers of investors and in what they are allowed to invest. This makes it difficult for investors to determine how they can and should invest, makes it difficult for brokers to comply with regulations, and interferes with the free and liquid flow of capital to its highest and best use.
There are already way too many regulations in place with respect to what choices investors are allowed to make, and when, and how. All that new regulations will do is to reduce the liquidity and the free flow of capital to its highest and best use, make investing decisions difficult and fraught for investors, and create an industry of potentially-rapacious "advisors" who will advise investors to choose those investments that are to the advantage of those advisors (or to the advantage of their broker employers), rather than the investors themselves.
Moreover, this regulation will involve FINRA in many years of attempting to clarify and/or correct misapprehensions with respect to the meaning and scope of the regulation. Investors will be uncertain, particularly at a time when many investors are about to retire and will need the greatest possible flexibility to choose what is best for their individual needs.
Having each investor choose what is best for their individual needs is how our American markets thrive. It is our national policy not to direct how investors must allocate their funds, unlike countries where the market is directed by the government (e.g., China). Moreover, the proposed regulatory notice might easily exceed FINRA's authority and cause the agency to be involved in court proceedings rather than perform its proper mission of protecting the public from unscrupulous brokers.
Again, I strongly disapprove of the proposed regulatory notice, for the described reasons. I also disapprove because the proposed regulatory notice cannot be implemented in a manner that is fair, reasonable, and clear.
I respectfully insist that FINRA consider and respond to each and every point I have made in these comments, as part of a public notice-and-comment process. I respectfully insist that FINRA withdraw the proposed regulatory notice in its entirety.
There is no reason to further interfere in the free markets (1) that make this country a beacon of capitalism, (2) that allow investors to allocate their own capital as they personally see fit and (3) that allow investors their freedom to allocate their property as they require. Moreover, I think FINRA's proposed regulation would have the effect of driving investors to other types of investment that are less well understood and less regulated, such as direct leveraged investment in real estate, futures market investments, or other investments that are clearly less liquid and more risky than leveraged or inverse ETFs.
Disclosure: I am a volunteer arbitrator for FINRA. I have seen foolish mistakes by investors. None of them have ever involved leveraged or inverse ETFs.
Very truly yours,
Steven Swernofsky