Mar. 17, 2020
Comment on SEC Proposed Rule #S7-24-15: Dear SEC, I ask you to please drop proposed rule 18f-4. If you MUST require broker/dealers to perform due diligence before accepting an order from, or placing an order for, the customer or client to engage in these transactions, I think you MUST also consider the leverage that the average investor uses while they invest and also carry a home mortgage. I do not have a home mortgage and believe my use of municipal bond CEFS, (3x) geared equity and (3X) geared bond holdings to be less than many who hold a mortgage and also invest. I am aware of how leverage works and believe it is not difficult for the average investor to find out about how it affects volatility and how geared products do not return a multiple of the index they are following due to daily leverage resets. I feel that your proposed rule would burden me greatly if not prevent access to the funds I am currently using. I don't understand why you feel you need to decide the products I can access. I don't believe you understand my situation - including being an expat with little taxed sheltered space and my desire to put as much exposure into my tax sheltered accounts to provide for my retirement. In fact, I wish the SEC would do something about expats being required to hold only US domiciled funds (due to burdensome PFIC taxation) and at the same time not being able to buy US domiciled funds if living in Europe due to European requirements. It seems some coordination on your part could make investing much easier. Similarly, we expats may not have tax sheltered space overseas either. Is this simply a move by financial advisors who are looking for an angle to get more assets under management (AUM)? Your proposed rule hurts me and I strongly urge you not to implement it. CEFs and geared ETFs save me much trouble compared to using leverage through futures. Investing is already exceedingly difficult already for expats. If your rules go through, many brokers will stop offering the products. The ones that do may very well not accept expats. So I predict that I will be disproportionally affected by your proposed rules. And I attest that I am already disadvantaged by having to only use US domiciled funds and by having my options to choose a broker greatly restricted by being an expat. I understand that foreign countries set the rules for their residents, but I also must follow the rules for the US. So how will I be able to put more equity exposure in my tax sheltered accounts? I am not sure if my broker now allows futures in IRAs. Some might, but remember as an expat I am already greatly restricted in the number of brokers who can accept me. I don't understand why you would freely let people invest in ETFs or mutual funds while they hold mortgage, but require me to do a song and dance act in order to receive your blessing to leverage as they are. And even if you approve, there is simply no guarantee that I will have access to these products anymore one your rules take affect. I will state again that expats have very limited investment avenues, and that your tightening requirements so drastically might cut me off completely. Look, geared exposure isn't that hard to understand (especially compared to futures and options). If the market goes up, you need to reduce exposure. If the market goes down, you need to add. Doing so will get you much closer to the advertised gearing. In fact, if you did it everyday, you'd be pretty close. There is no need for me to be that precise in my exposure though, and I am happy to accept returns that differ from the multiple of the index. As for CEFs, I think you would kill the market. I think the CEFs that I hold would get crushed. I don't want to have to sell them in anticipation of your draconian proposal which will cause their price to fall. And I don't want to incur capital gains taxes by being forced to sell because companies are exiting the CEF market due to low customer demand due to your onerous proposals. I truly plead with you NOT to restrict access to the products that I need to secure my retirement. As I stated earlier, if this is something you MUST do, I would ask that 1) you also restrict investment at any broker for any product for anyone with a mortgage, student loans, auto loans or even credit card desk. Why should I be disproportionately burdened by your unnecessary nannying? I also ask that 2) you see fit to ensure that these products remain accessible to those who might not have free choice in brokers due to being (an American) overseas. I also ask that 3) you consider the impact your actions will have on the value of our investments in CEF funds which likely would experience outflows and lessened future inflows. I also ask to understand that 4) it's not difficult to understand leverage and use it safely. Your proposals place a huge burden on me because it will hinder my investment opportunities and cost me money. Why is my choice of leverage (geared ETFs and CEFs) so much more dangerous that investing via money effectively obtained via a home mortgage, auto loan etc? I took the trouble to educate myself about investing so I could use available products safely. Unfortunately, I am just not able to increase my tax sheltered space, need more equity exposure there, and very possibly won't be able to do that if your rule is enacted. I understand that I may be disproportionally affected by your rule, but why do you have to hurt me so that other people don't potentially hurt themselves. They can do that just as well by buying a plain stock and selling after a crash because they lost their job and need to pay their mortgage - no levered ETF or CEF required. Regards, Shawn Brown