Ouch! SEC to put the crimp on leveraged ETFs.

[lindq]

Please, say it ain't so. They're my favorite short term trading instruments.

http://blogs.barrons.com/focusonfun...ropose-rules-that-could-crimp-leveraged-etfs/

 

[lindq]

Also: http://www.wsj.com/articles/sec-to-crack-down-on-derivatives-1449279927

 

[zdreg]

whenever the SEC puts in a new rule which crimps the retail investor ask the question whether goldman sachs asked for the change because it benefits from the change.

 

[R1234]

My guess is SEC won't do anything, the leveraged/inverse ETF industry is too big already.
Hopefully they do something tame like require increased disclosures.
A total ban on these instruments would put my RIA out of business instantly.

 

[lindq]

I hope you guess correctly. But I fear not. The leveraged fund guys are dust in the trillion dollar world of major fund players who pull the levers. And it's those players who are feeling threatened by outflows from hedge funds and mutual funds.

IMO, the greatest danger with leveraged ETFs is not so much the direct investment by individuals, as it is the use of the instruments by money managers, without proper disclosure to their clients. So yes, disclosure should be the issue most addressed by the SEC, in the same way that disclosures for options, futures, etc., have been required.

 

[ETcallhome]

I hope you guess correctly. But I fear not. The leveraged fund guys are dust in the trillion dollar world of major fund players who pull the levers. And it's those players who are feeling threatened by outflows from hedge funds and mutual funds.

IMO, the greatest danger with leveraged ETFs is not so much the direct investment by individuals, as it is the use of the instruments by money managers, without proper disclosure to their clients. So yes, disclosure should be the issue most addressed by the SEC, in the same way that disclosures for options, futures, etc., have been required.

this is just the old Blue Sky Laws. It's to protect the integrity of the market in the retailers mind. And there are some bad apples out there who ruin it for honest RIA's. Bad for business when somebody starts mouthing off at a cocktail party how they lost it all on a leveraged etf.

 

[lindq]

Here is the FTC announcement regarding their proposed rules for derivatives and ETFs/Mutual funds. (They propose to limit use of derivatives.) It will be interesting to see the response from the ETF providers and the financial press.

http://www.sec.gov/news/pressrelease/2015-276.html

 

[fxwizard]

Nothing will be shut down. Mark my words, these regulations are being made to prevent traders like CIS from betting $200M in a single trade using the broker's "leverage". Somebody had to absorb the other side of that rather large trade. You notice they included words like "futures" in the regulation, an instrument which CIS used to bet $200M this year... With these regulations soon to be voted, CIS would only be able to bet max his trading account trading an ETF like NUGT wheras before he could have went in twice as large!

 

[prc117f]

So I assume derivatives on etfs would mean restrictions on using equity options on the spy for example?

 

[fxwizard]

I think the real issue was the ppl at the SEC saw what trader CIS did to Tokyo early this fall and said, "gee, what if there are traders like that in the US market". So ppl started talking and we're only starting to see the outcomes like this one.

The important point was the SEC thinks "fund managers" (ie. ppl with big money, could be just one independent trader with millions in their account) should limit their exposure to ETFs so as to have less ability to adversely affect the ETF market per individual "entity".

I think the outcome the SEC is after with these regulations is to prevent individual traders from trading ETFs on margin rather than the ETF's ability to return a 3X gain. The new rule could read something like vehicles with "complex instruments" won't be marginable anymore b/c of the adverse risk.