Feb. 20, 2020
1. I protest against the retroactive application of II.G (page 176 and following) of the subject file to leveraged and inverse ETFs already in existence. This amounts to changing the rules in the middle of the game. 2. If the SEC had a problem with these ETFs, it should either not have approved them to begin with, or it should have required, from the get-go, that investors in them be "options-qualified". Now, however, retroactively requiring "options-qualification" for investors in existing funds would hurt the very people such a regulation is supposed to help. 3. What would happen to investors who had already taken positions in these funds but who would not qualify for options trading? They could be forced to abandon positions at a loss or abandon profitable ones. If their discipline called for periodic exit and reentry, they would be forced out of their pattern. 4. II.G.191 proposes as an option, "allowing" people who have invested in inverse/leveraged in the past to continue to do so, even if they would not be "options qualified". The problem is, there is no practical way to do this. It would be a burden on brokerages to try to track those who have invested in these funds in the past. If you propose instead that brokerages ask, on their options-qualifying forms, that investors furnish proof that they have traded in these funds in the past, this would require them to change their forms, or create a new form for investors who want exemption from options-qualification. In short, "allowing people who have invested in inverse/leveraged in the past to continue to do so" really means "allowing the brokerages to allow them", and this is something the brokerages are not likely to do. 5. Even if brokerages would "grandfather" individual investors, these investors would still be harmed. Brokerages might stop offering inverse/leveraged funds because of difficulty implementing the regulations, thus freezing out the "grandfathered" investor. Restricting new investors would also distort the market and could even force otherwise viable existing funds to close, again penalizing existing investors. 6. In short, the only equitable way to protect existing investors is not to try to grandfather individual investors, but rather to grandfather the existing funds. Steven Berline