SEC looking mto curb leveraged ETFs
- Thread starter ajacobson
- Start date
They should either go away or have a self exit feature at 3 trading days.
Ever wonder why there is a warning label on your lawnmower that reads: "Warning, don't stick your hands or feet under the mower while in use."
I liked the following comment:
Today we can't have savvy and unsophisticated investors using levered ETF's. Risk is to be avoided at all cost.
72 years ago today we had 18 and 22 year olds unloading themselves from LSTs onto the beaches of Normandy where the probability of death was around 20%.
Generation Snowflake if you ask me.
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Maybe on the confirm trade button there should be a popup that asks whether you understand what you're doing. After hitting the yes, maybe another popup should ask "Are you fucking sure?"
I liked the following comment:
Today we can't have savvy and unsophisticated investors using levered ETF's. Risk is to be avoided at all cost.
72 years ago today we had 18 and 22 year olds unloading themselves from LSTs onto the beaches of Normandy where the probability of death was around 20%.
Generation Snowflake if you ask me.
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Maybe on the confirm trade button there should be a popup that asks whether you understand what you're doing. After hitting the yes, maybe another popup should ask "Are you fucking sure?"
It's always fun until someone (sometimes it's an insider but usually a sucker) gets a stick in the eye. Unintended consequences perhaps? I read somewhere that the SEC was very concerned about leveraged ETFs because allied with HFT they are a IMO a weapon of mass destruction. They make it hard to judge true market liquidity (as they conceal it). Remember August 24 2014?
If the whales start losing money, then safety of the minnows becomes a big issue in the media. I read a tax lawyer's claim (anonymously so probably bogus) that he writes the law for specialized legislation because the politicians can't understand it, so they come to him for a big fee to write it. It's great business since he also leaves esoteric loopholes to sell later on to his "high value" clients. He was pretty cocky. IMO, that couldn't happen because the government would be guaranteed to prosecute him if he did anything like that. I remember wondering if the clients and the government were different people because what a conflict of interest, if they weren't. He is probably doing time right now because the article had wide circulation.
BTW, there was a funny story about SOAR and SINK ETFs in the past that caused a controversy. I no longer have the link (wish I still did) but here talk of it:
http://seekingalpha.com/instablog/4...l-s-first-100x-leveraged-etfs-story-is-a-hoax
Some folks got really riled up. It said something similar to: traders were "guaranteed" to bust out several times a day but if you could avoid the busts you could make a fortune with a few quick trades at low risk. Real traders laughed hard at the joke but there were lots of people saying why can't we have them. (Alas a fool and his money are soon parted.)
If the whales start losing money, then safety of the minnows becomes a big issue in the media. I read a tax lawyer's claim (anonymously so probably bogus) that he writes the law for specialized legislation because the politicians can't understand it, so they come to him for a big fee to write it. It's great business since he also leaves esoteric loopholes to sell later on to his "high value" clients. He was pretty cocky. IMO, that couldn't happen because the government would be guaranteed to prosecute him if he did anything like that. I remember wondering if the clients and the government were different people because what a conflict of interest, if they weren't. He is probably doing time right now because the article had wide circulation.
BTW, there was a funny story about SOAR and SINK ETFs in the past that caused a controversy. I no longer have the link (wish I still did) but here talk of it:
http://seekingalpha.com/instablog/4...l-s-first-100x-leveraged-etfs-story-is-a-hoax
Some folks got really riled up. It said something similar to: traders were "guaranteed" to bust out several times a day but if you could avoid the busts you could make a fortune with a few quick trades at low risk. Real traders laughed hard at the joke but there were lots of people saying why can't we have them. (Alas a fool and his money are soon parted.)
Sadly most consumer protection is aimed at those very same 18-22 year olds who are now 90 year olds (actually more late 70s plus) and who seem to have an appalling ability to make poor decisions and be taken advantage of. Millennials grew up with the internet, they don't get scammed by Nigerian princes or 3X funds. And I'm probably crazy, but I actually like a world where we don't put our 18-22 year olds at 20% risk of death, call me a "snowflake" all you want!
I've actually mostly given up trying to explain daily percentage return concept of leveraged and inverse funds to people on this board unless they're specifically asking to learn about it. Not only do most refuse to get it, they actually get antagonistic about their incorrect understanding of it as well. I realize that ET is a low bar, but if the vast majority of people here seem be incapable of understanding a fundamental concept of these funds then perhaps they should be restricted to accredited investors.
The article cites potential restrictions on the 3x funds, which I agree are "absolute trash."
These funds have clearly written sentences in bold print on their fact sheets and prospectuses that they seek investment returns for a SINGLE DAY. The article quotes Proshares and Direxion claiming that shareholders keep triple leveraged ETFs for one to four days.
Direxion settled a lawsuit filed by shareholders and paid $8 million in 2013 without admitting any wrongdoing, while Proshares also had a lawsuit against it which was dismissed by a judge in 2012.
The SEC wants to curb the limits on borrowing, and since these ETFs are highly leveraged, they end up being sold by advisors to unwitting investors who simply don't understand how these ETFs are structured.