Hi,
I would like to express my opinions on Regulatory Notice #22-08:
1.
How do members categorize products as complex? Have firms implemented categories or tiers of complex products and, if so, how have firms determined such tiers? What types of products have recently been introduced that should be viewed as complex? Does our description of characteristics that render a product complex continue to appropriately cover necessary products?
Among all listed examples:
a. Defined outcome products: These shouldn't be barred from individual investor's participance since individual investors currently could directly invest in the underlying instruments (options) without tightened restrictions. Instead, there should be better description and introduction requirements for these products rather than generic "downside protection"/"golden-buffer" names.
b. Mutual funds and ETFs that offer strategies employing cryptocurrency futures: According to https://www.vaneck.com/us/en/blogs/digital-assets/what-investors-should…, the roll yield of Bitcoin futures is ~-10% during the tracked period, which I would argue it's a small fraction of yearly bitcoin volatility, and the roll yield which caused the diviation of prices might tighten when the product becomes more mature.
c. Interval funds, or tender-offer funds that provide limited liquidity to investors: Don't have specific opinions on classifying these as complex products.
2.
Are there additional requirements that should be added to the existing options requirements?
Based on my experiences most of existing classifying systems don't really work as intended (in terms of prohibiting uninformed investors), since they usually only ask to fill in your YoE and number of previous option trades, while some might ask you for a quick quiz whose most questions can be solved by Googling, and tons of people I know chose the levels without fully understaning the questions. This phenomenon demonstates the impractical reality of enforcing a leveled options trading permissions. If there're stringent rules on this, it might push them to unregulated crypto derivatives which could further harm their investing performance. Therefore, I recommend not enforcing further requirements on options trading, but allow more beginner-friendly products (e.g., defined-outcome ETFs/index options ETFs) to be on the market.
Zheng Luo Comment On Regulatory Notice 22-08
Hi,
I would like to express my opinions on Regulatory Notice #22-08:
1.
How do members categorize products as complex? Have firms implemented categories or tiers of complex products and, if so, how have firms determined such tiers? What types of products have recently been introduced that should be viewed as complex? Does our description of characteristics that render a product complex continue to appropriately cover necessary products?
Among all listed examples:
a. Defined outcome products: These shouldn't be barred from individual investor's participance since individual investors currently could directly invest in the underlying instruments (options) without tightened restrictions. Instead, there should be better description and introduction requirements for these products rather than generic "downside protection"/"golden-buffer" names.
b. Mutual funds and ETFs that offer strategies employing cryptocurrency futures: According to https://www.vaneck.com/us/en/blogs/digital-assets/what-investors-should…, the roll yield of Bitcoin futures is ~-10% during the tracked period, which I would argue it's a small fraction of yearly bitcoin volatility, and the roll yield which caused the diviation of prices might tighten when the product becomes more mature.
c. Interval funds, or tender-offer funds that provide limited liquidity to investors: Don't have specific opinions on classifying these as complex products.
2.
Are there additional requirements that should be added to the existing options requirements?
Based on my experiences most of existing classifying systems don't really work as intended (in terms of prohibiting uninformed investors), since they usually only ask to fill in your YoE and number of previous option trades, while some might ask you for a quick quiz whose most questions can be solved by Googling, and tons of people I know chose the levels without fully understaning the questions. This phenomenon demonstates the impractical reality of enforcing a leveled options trading permissions. If there're stringent rules on this, it might push them to unregulated crypto derivatives which could further harm their investing performance. Therefore, I recommend not enforcing further requirements on options trading, but allow more beginner-friendly products (e.g., defined-outcome ETFs/index options ETFs) to be on the market.