Mar. 17, 2020
Comment on SEC Proposed Rule #S7-24-15: Regarding SEC Release No. 34-87607, which proposes that the SEC adopt regulations that may limit my ability to trade Leveraged and Inverse Funds (L&I Funds), I am adamantly opposed to such regulations. I have traded commodity futures and options on commodity futures, as well as options on stocks successfully. The use of L&I Funds allows me to trade these markets WITHOUT having the possibility of margin calls and also with lower (now NO) commissions. Also, with futures and options contracts there is a limited time period in which the market must move in order for the investor to realize a profit. Whereas with L&I Funds if the timing of the investor is not perfect then the option often will expire worthless or in the case of a commodity futures contract the investor may have to sell the futures contract of an expiring month and purchase the contract of a farther out month in order to stay with a position. This is more costly and inconvenient for the investor, not to mention it is a big hassle!!! My brokerage company already requires that I provide financial and personal information to them for review in order to decide if I understand and am capable of evaluating the risks of trading L&I Funds and options contracts. I understand the characteristics and risks of L&I Funds that I trade, including the “Daily” funds where distortions can result if such funds are held for longer periods of time. I firmly believe that my brokerage firm should have the right and responsibility to decide whether I am sufficiently “capable” to assess risk, or to disqualify me from trading L&I Funds or any other publicly offered investment, just as they currently do with option contracts for example. Whenever I place a trade for a L&I Fund through my brokerage firm a WARNING appears reminding me of the risks of that trade and that I have previously acknowledged that I understand and am aware of those risks. Such warning does not exist for options contracts, and personally I find those to be more risky in the long run than trading L&I Funds because the time often runs out and the option expires worthless (so I lose 100% of that investment), whereas with an L&I Fund there is no expiration date. Frankly I find it offensive that the SEC has proposed these new regulations because it believes that investors may be incapable of understanding the characteristics and risks of L&I Funds and making their own informed trading decisions. I sign into my on-line brokerage several times daily (via my phone App), even when I happen to not have any option or L&I Funds positions, because I like to keep up on market action. Most of my assets are in rock solid investments, but with a portion I choose to speculate by making investments in options contracts and L&I Funds. I fully realize that with any investment I make in option and commodity futures contracts I could potentially (and sometimes do) lose all of that investment, such as when an option expires worthless. The use of L&I Funds gives me added flexibility and potential to profit in market moves in either direction (with inverse funds), and for more profit potential (with leveraged funds), without the risk of an option expiring worthless and then that market moves the way I was expecting, but without ME since my option expired or having to roll a commodity futures contract over to a new month farther out to stay with a position. In my opinion the belief that investors cannot be trusted to understand clearly disclosed risks is an unprecedented, alarming and notable departure from the bedrock principles of the capital markets and of how the SEC regulates the offering of other securities. It would be a HUGE dis-service and an unnecessary burden to investors to proceed with these proposed regulations to further regulate the use of L&I Funds. In closing, in my opinion if the SEC does proceed with the proposed regulations, it is my firm belief and opinion that my prior use of L&I Funds (as well as other investors currently using L&I Funds), should automatically qualify me/us to continue trading L&I Funds under the proposed regulations. Sincerely, Donald P. Krump