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New Leverage Requirements 4/30...opinions, thoughts
- Thread starter equitydaytrader
- Start date
These margin rules are nutty. They penalize a relatively low volatility index because of leverage, but allow you to trade individual stocks with insane volatility at the normal 4x DTBP.
It is just one more example of the regulators trying to make peace with the idiots in congress. Special thanks here has to go to Jim Cramer and the other blowhards on RealMoney ,who mounted a crusade against leveraged ETFs.
It is just one more example of the regulators trying to make peace with the idiots in congress. Special thanks here has to go to Jim Cramer and the other blowhards on RealMoney ,who mounted a crusade against leveraged ETFs.
i really dont understand why they are even changing anything. if retaul traders go below their margin the broker can sell the position so what's the problem??
this news is NOT new, these rules came out months ago!!!!!!!!!!!!!!
ETF
Leveraged ETF Margin Rules to Change
By Don Dion 09/01/09 - 01:20 PM EDT
Stock quotes in this article: FAS , FAZ , EDZ , SRS , SKF
NEW YORK (TheStreet) -- In what could be be a major blow to ultra-long and utra-short ETFs, the Financial Industry Regulatory Authority announced Tuesday that it would be raising margin requirements for leveraged ETFs on Dec. 1.
In Regulatory Notice 09-53, FINRA notes that it will be implementing increased customer margin requirements for leveraged ETFs and uncovered options overlying leveraged ETFs.
Leveraged ETFs like the Direxion Daily Financial Bull 3X(FAS) and Direxion Daily Financial Bear(FAZ) have become increasingly popular with investors over the last year. These funds use derivatives like futures and swaps to achieve ultra-long or ultra-short exposure to their underlying indices.
FINRA notes the "inherent" volatility of leveraged ETFs as the reason for the new requirements. Since many of the leveraged ETF funds are designed to give investors 200% or 300% exposure to their underlying indices, the funds can swing violently depending on the direction of the market.
Citing NASD Rule 2520, FINRA says that "in response to market conditions," it will "prescribe higher initial and maintenance margin requirements." FINRA also is careful to distinguish the "increased volatility of leveraged ETFs compared to those of their non-leveraged counterparts."
Currently, in a strategy-based margin account, the maintenance margin requirement is 25% of the market value for any long ETF, and generally 30% of the market value for any short ETF. The new margin rules will require that margin requirements increase by "a percentage commensurate with the leverage of the ETF, not to exceed 100% of the value of the ETF."
ETF
Leveraged ETF Margin Rules to Change
By Don Dion 09/01/09 - 01:20 PM EDT
Stock quotes in this article: FAS , FAZ , EDZ , SRS , SKF
NEW YORK (TheStreet) -- In what could be be a major blow to ultra-long and utra-short ETFs, the Financial Industry Regulatory Authority announced Tuesday that it would be raising margin requirements for leveraged ETFs on Dec. 1.
In Regulatory Notice 09-53, FINRA notes that it will be implementing increased customer margin requirements for leveraged ETFs and uncovered options overlying leveraged ETFs.
Leveraged ETFs like the Direxion Daily Financial Bull 3X(FAS) and Direxion Daily Financial Bear(FAZ) have become increasingly popular with investors over the last year. These funds use derivatives like futures and swaps to achieve ultra-long or ultra-short exposure to their underlying indices.
FINRA notes the "inherent" volatility of leveraged ETFs as the reason for the new requirements. Since many of the leveraged ETF funds are designed to give investors 200% or 300% exposure to their underlying indices, the funds can swing violently depending on the direction of the market.
Citing NASD Rule 2520, FINRA says that "in response to market conditions," it will "prescribe higher initial and maintenance margin requirements." FINRA also is careful to distinguish the "increased volatility of leveraged ETFs compared to those of their non-leveraged counterparts."
Currently, in a strategy-based margin account, the maintenance margin requirement is 25% of the market value for any long ETF, and generally 30% of the market value for any short ETF. The new margin rules will require that margin requirements increase by "a percentage commensurate with the leverage of the ETF, not to exceed 100% of the value of the ETF."
FAZ has dropped from over 1000 (R/S adjusted) to 11. It is, by my calculations, a scam. They should take the next step and shut Direxion down.