Jul. 31, 2026
SEC Docket: File No. S7-2026-24 (Request for Comment on Novel ETFs) Submission Deadline: August 31, 2026 Primary Focus: Opposing leveraged and inverse single-stock ETFs due to severe risks for retail investors (daily compounding drag, volatility decay, and suitability concerns) as well as potential systemic stability risks during sudden market rebalancings. Drafted Comment Letter Text Secretary Securities and Exchange Commission 100 F Street, NE Washington, DC 20549-1090 Re: Request for Comment on Novel Exchange-Traded Funds (File No. S7-2026-24) Dear Secretary, I am writing to express strong opposition to the continued proliferation and streamlined registration of leveraged single-stock exchange-traded funds (ETFs) under the current regulatory framework. While Rule 6c-11 was designed to modernize the ETF marketplace for diversified, traditional index-based funds, its generic application to single-security leveraged and inverse products creates substantial risks for retail investors and poses unstudied threats to broader market stability. 1. Retail Investor Harm and Compounding Risk Unlike traditional ETFs that offer broad market diversification, single-stock leveraged products concentrate exposure into a single asset while multiplying its daily price movements. Because these funds reset daily, their long-term performance suffers from severe volatility decay and path dependency. Retail investors frequently misinterpret these instruments as buy-and-hold vehicles, leading to significant capital losses that diverge wildly from the underlying equity's long-term performance. 2. Systemic Market Stability and Rebalancing Pressures The mechanical rebalancing required by leveraged single-stock ETFs at or near the market close creates pro-cyclical trading pressures. During periods of heightened market volatility, forced buying or selling by ETF market makers to maintain leverage ratios can exacerbate price swings in the underlying stock, creating localized liquidity freezes and systemic feedback loops. 3. Necessity of Regulatory Reform I urge the Commission to amend Rule 6c-11 and the associated exchange listing standards to exclude single-stock leveraged and inverse products from generic listing eligibility. The SEC should subject these complex offerings to individualized exemptive orders, mandatory clear product labeling/warnings, and heightened suitability reviews to ensure retail investors are properly protected. Thank you for the opportunity to comment on this important matter. Respectfully submitted, Jim Huynh