- Many of the leverage etfs, specially those which represents the broader market, such as UDOW (3x Dow Jones etf), have a long term upward movement and can be held long term if investors can stomach the volatility. Meaning if investor held them, they would have been rewarded. If you ignore the most recent downturn, UDOW since inception had an upward movement and rewarded investors more than 15 times their original investment outperforming the Dow Jones Etf over the same period. (bottom of the Dow in 2009 of 7,000, highest Dow Jones of 36,000 in Oct 2021 vs at inception in 2010, UDOW was 5 (split adjusted) and highest in October 2021 of 85.
- Investors understand the risks involved and that these products use options, balance every day, and in some cases may underperform the underlying assets even if the underlying assets have an upward movement. Investors also understands that leverage etf targeting sectors, or inverse etf may not be held for a long term and such is disclosed clearly in the prospectus of the etf.
- SEC approved non-leverage products such as VIX etfs, junior gold or silver miners etf and so on that can lose value rapidly if investors was not careful, so why come strongly against leverage etf given some of those products particularly those representing the broader market have done well even over the long term.
- If investors are allowed to invest in individual stocks, then I argue that a trader or an investor who puts his money in ONE stock which neither FINRA nor the SEC seem to object, will have a higher risk of losing their capital than investing in a leverage etf representing the broader market. Investing in IPO, spacs, meme stocks pose higher risks and than leverage etfs.
- Investors or traders who use margin ( a form of leverage) have a higher chance to lose their capital when the margin is called usually at the worst times. Yet the SEC and FINRA don't seem to mind this, while somebody who hold leverage etf particularly those representing the broader market can hold and not have a margin call and since the market has an upward movement, an investor will be able to restore his position.
- Implementing this rule now will result in substantial losses to investors that cannot be recovered. Investors in leverage etfs particularly those representing the broader market such as TQQQ have learnt to stomach volatility and hold their positions until the market improve. TQQQ was around 92 in October 2021 and now around 35 because the nasdaq went down from 16,200 to 12,300 and because of the compounding effect. However, since we think the nasdaq will go back to all times high sometime in the future, it always does, the TQQQ will recover. However, if FINRA restrict investors from the TQQQ, then paper loss will become a real loss and there are no instruments in the market can restore the capital quickly and therefore investors can be greatly harmed if this is implemented during a down turn. Even if investors are not force to liquidate existing positions but prevented from entering new positions, investors can still be greatly harmed since investors toggle back and forth from leverage etf to inverse leverage etf to reduce their risks. So even if implemented for new position, the moment an investor sells their leverage etf to buy an inverse leverage etf or stay in cash before getting back or vise versa, he is shut down and actually may be forced to remain in a failing leverage etf because he cannot go back into it if he sells.
- I wish SEC or FINRA go after market manipulator and those hedge funds that buy individual retail investors data to bet against them. I don't why the broker is allowed to sell trades info to third party? The idea this reduces commission is an upsurdity. Individual traders or investors rather pay higher commission and keeps his data private.
- The idea to limit this to high networth individuals does not make any sense, self contradictory and discriminatory. There is no evidence that a high networth individual (could be a basketball player) know this more than a professional trader. This is also a discriminatory toward big hedge funds who are already competing unfairly and the idea that regulators will enable this is unprecedented.
- The timing is a suspect, why would you choose a downturn to implement this. It seems that the SEC wants all unrealized losses be converted to realize losses. We have heard the FED talks about demand destruction to rain down inflation. Demand destruction is actually wealth destruction. The Fed will NOT succeed in raining down inflation by destroying wealth. People will still buy food, rent or buy homes, buy cars to work, consume energy, and use the healthcare system. It is better they do all that while they are wealthy than poor. The Fed is borrowing a page from the 1970's chairman Paul Volcker who raised interest rate to over 20% to "rain down inflation". But the cause of inflation back then is the loss of confidence in the US dollar after Nixon's announcement that the dollar will no longer be backed by gold. To counter that effect Volcker raised to interest rates to draw capital inflows into the US and stop the currency depreciation. However, the current inflation is attributed mainly to supply issues (Ukraine war, China covid restrictions,...etc) and the FED cannot restore supply. Demand cannot be destroyed, people will still have to eat. So destroying wealth by implementing this at the worst time is not only wrong but could have catastrophic consequences.
Wajna Harf Comment On Regulatory Notice 22-08
- Many of the leverage etfs, specially those which represents the broader market, such as UDOW (3x Dow Jones etf), have a long term upward movement and can be held long term if investors can stomach the volatility. Meaning if investor held them, they would have been rewarded. If you ignore the most recent downturn, UDOW since inception had an upward movement and rewarded investors more than 15 times their original investment outperforming the Dow Jones Etf over the same period. (bottom of the Dow in 2009 of 7,000, highest Dow Jones of 36,000 in Oct 2021 vs at inception in 2010, UDOW was 5 (split adjusted) and highest in October 2021 of 85.
- Investors understand the risks involved and that these products use options, balance every day, and in some cases may underperform the underlying assets even if the underlying assets have an upward movement. Investors also understands that leverage etf targeting sectors, or inverse etf may not be held for a long term and such is disclosed clearly in the prospectus of the etf.
- SEC approved non-leverage products such as VIX etfs, junior gold or silver miners etf and so on that can lose value rapidly if investors was not careful, so why come strongly against leverage etf given some of those products particularly those representing the broader market have done well even over the long term.
- If investors are allowed to invest in individual stocks, then I argue that a trader or an investor who puts his money in ONE stock which neither FINRA nor the SEC seem to object, will have a higher risk of losing their capital than investing in a leverage etf representing the broader market. Investing in IPO, spacs, meme stocks pose higher risks and than leverage etfs.
- Investors or traders who use margin ( a form of leverage) have a higher chance to lose their capital when the margin is called usually at the worst times. Yet the SEC and FINRA don't seem to mind this, while somebody who hold leverage etf particularly those representing the broader market can hold and not have a margin call and since the market has an upward movement, an investor will be able to restore his position.
- Implementing this rule now will result in substantial losses to investors that cannot be recovered. Investors in leverage etfs particularly those representing the broader market such as TQQQ have learnt to stomach volatility and hold their positions until the market improve. TQQQ was around 92 in October 2021 and now around 35 because the nasdaq went down from 16,200 to 12,300 and because of the compounding effect. However, since we think the nasdaq will go back to all times high sometime in the future, it always does, the TQQQ will recover. However, if FINRA restrict investors from the TQQQ, then paper loss will become a real loss and there are no instruments in the market can restore the capital quickly and therefore investors can be greatly harmed if this is implemented during a down turn. Even if investors are not force to liquidate existing positions but prevented from entering new positions, investors can still be greatly harmed since investors toggle back and forth from leverage etf to inverse leverage etf to reduce their risks. So even if implemented for new position, the moment an investor sells their leverage etf to buy an inverse leverage etf or stay in cash before getting back or vise versa, he is shut down and actually may be forced to remain in a failing leverage etf because he cannot go back into it if he sells.
- I wish SEC or FINRA go after market manipulator and those hedge funds that buy individual retail investors data to bet against them. I don't why the broker is allowed to sell trades info to third party? The idea this reduces commission is an upsurdity. Individual traders or investors rather pay higher commission and keeps his data private.
- The idea to limit this to high networth individuals does not make any sense, self contradictory and discriminatory. There is no evidence that a high networth individual (could be a basketball player) know this more than a professional trader. This is also a discriminatory toward big hedge funds who are already competing unfairly and the idea that regulators will enable this is unprecedented.
- The timing is a suspect, why would you choose a downturn to implement this. It seems that the SEC wants all unrealized losses be converted to realize losses. We have heard the FED talks about demand destruction to rain down inflation. Demand destruction is actually wealth destruction. The Fed will NOT succeed in raining down inflation by destroying wealth. People will still buy food, rent or buy homes, buy cars to work, consume energy, and use the healthcare system. It is better they do all that while they are wealthy than poor. The Fed is borrowing a page from the 1970's chairman Paul Volcker who raised interest rate to over 20% to "rain down inflation". But the cause of inflation back then is the loss of confidence in the US dollar after Nixon's announcement that the dollar will no longer be backed by gold. To counter that effect Volcker raised to interest rates to draw capital inflows into the US and stop the currency depreciation. However, the current inflation is attributed mainly to supply issues (Ukraine war, China covid restrictions,...etc) and the FED cannot restore supply. Demand cannot be destroyed, people will still have to eat. So destroying wealth by implementing this at the worst time is not only wrong but could have catastrophic consequences.