May. 09, 2020
Comment on SEC Proposed Rule #S7-24-15: Dear Sir/Madam, as an individual investor who has successfully traded leveraged and inverse ETFs for years, I firmly believe, that these Funds have to remain available for individual investors in the future as well. The companies offering these products have always provided comprehensive disclosure of the risks and characteristics of these Funds in the Prospectuses and other materials. Moreover, there is a ton of information in the media about the inherent risks of these products, especially when held for longer periods of time. The risks of leveraged and inverse exchange traded funds are actually more frequently discusses than the risks of many other investment products, that are also available to small/individual investors. I firmly believe that investors using leveraged and inverse exchange traded products do inform themselves of the risks involved, since a lot of them are investing or trading with their very own money. Here are just some of these risks, that I know of: risks associated with the use of derivatives, rebalancing risk, leverage risk, compounding risk, liquidity risk, tax risk, non-diversification risk, equity and market risk, correlation risk, counterparty risk. I also believe that investing in individual stocks can be far riskier and more dangerous than investing in a long leveraged ETF on a broad market index. Too much regulation and too much protection of private investors would severely limit their opportunities to trade and invest profitably in the mid and long term and might even motivate them to start trading and investing in a riskier manner. I would also like to emphasize the very important role of the inverse and inverse-leveraged ETFs as a simple yet effective way to hedge a long portfolio. In this case, especially by falling markets, the inverse (or inverse-leveraged) exchange traded fund actually reduces the overall risk for the investor and stabilizes their portfolio. I have successfully used this hedging strategy many times myself. I have heard the statement, that some small investors don't monitor their positions in leveraged and inverse funds on a regular basis. I believe in quite the opposite: as an individual trader or investor you monitor your positions much more intensively, since you have your own hard-earned cash on the line and not somebody else's money. I, for instance, normally check my positions at least 3 times a day and much oftener in turbulent markets. It isn't a good idea to let brokerage firms assess and decide which of their clients qualify to trade in inverse and leveraged funds. Put under such circumstances, pretty much all brokerage firms will probably just block the access of all their retail clients to these products - this is much easier and less complicated than having to evaluate the clients. I am also pretty sure that there are many experienced retail investors and individual traders out there who can better assess the risks of leveraged and exchanged funds as some of their brokers. I and many others have successfully traded leveraged and inverse exchange traded funds for years and these have augmented our investment profits and reduced the overall risk for our portfolios (i.e. by hedging using inverse funds). Limiting our access to these products now does not make any sense, in my opinion. Like I mentioned above, I firmly believe that far more people lost money with individual stocks than using leveraged and inverse exchange traded products.