Subject: N/A
From: Fitzhugh Pannill

Mar. 17, 2020

Comment on SEC Proposed Rule #S7-24-15: 

Enter your comments here. 

I strongly object to your proposal to remove inverse ETFs. This will in fact cause more risk and expense to individual investors who will be forced to then rely on complicated, more risky and more expensive option strategies or even short the market. Both of these approaches to portfolio protection are even riskier and much more expensive, and require us to pay more fees to brokerage houses. 

I have used inverse and levered ETFs since they were introduced, as a way to protect my portfolio from significant losses during market downturns, and to avoid paying capital gains. I use them sparingly and in small percentages ( 2 to 3%). 

I have 30 plus years of experience managing my own investments and, for example, only lost 14% in 2008 primarily using SDS and SH. I monitored the positions carefully. 

A financial advisor, if I used one, would probably use puts in the same situation, but I have never found the 1.25% fee worth paying, much less he additional expense of an option contract. 

You will probably say I could use puts for the same effect on my own, but I have not been able to find time or resources to become comfortable with even simple strategies. In addition they are more expensive to trade than ETFs, especially now when there are no fees for ETF trades. The bid/ask spread on the larger ones I use is acceptable. 

I have never been comfortable with the restrictions or margin expense required to start shorting stocks or ETFs. Why should I have to do this, because you feel I am making a mistake with the ETF SH, for example? 

I have not seen evidence that inverse or leveraged ETFs are a significant problem. However, why does the SEC feel it needs to “protect” investors from them? The SEC didn't stop trading in Dot.Com companies when they were selling for nosebleed PEs with no revenue. There are hundreds of other examples of investor “herd” behavior that has caused much misery but has gone unmentioned by the SEC. Why go after a small segment of the market? 

If you remove these vehicles from the market, you will in fact be increasing the risk to small investors like myself as we will have few alternatives to protect our gains during market downturns, other then to trade options against the real pros or to start shorting an index, or go to cash and pay more taxes. 

If you must, make them available to accredited individuals only, but do not completely remove a valuable tool for individual investors like me. 

Fitzhugh Pannill