Mar. 23, 2020
Comment on SEC Proposed Rule #S7-24-15: Reference: File Number S7-24-15 Retail investors would be irreparably harmed by the proposed rule. The proposed sales practices rules would require a broker, dealer, or investment adviser that is registered with (or required to be registered with) the Commission to exercise due diligence in approving a retail customer’s or client’s account to buy or sell shares of certain “leveraged/inverse investment vehicles” before accepting an order from, or placing an order for, the customer or client to engage in these transactions. The costs imposed by the proposed sales practices would most certainly cause current retail brokerage firms to stop offering the subject products to retails investors, since these firm’s cost structures don’t allow them to have the staff that would be needed to perform the proposed due diligence for each retail investor who desires to invest in certain “leveraged/inverse investment vehicles.” As such, access to these investment vehicles would now be denied to existing and new clients, which would cause IRREPARABLE HARM TO RETAIL INVESTORS. This would be fundamentally counter to Section 3(f) of the Exchange Act and section 2(c) of the Investment Company Act, which state that when the Commission is engaging in rulemaking under such titles and is required to consider or determine whether the action is necessary or appropriate in (or, with respect to the Investment Company Act, consistent with) the public interest, the Commission shall consider whether the action will promote efficiency, competition, and capital formation, in addition to the protection of investors. Further, section 23(a)(2) of the Exchange Act requires the Commission to consider, among other matters, the impact such rules would have on competition and states that the Commission shall not adopt any rule that would impose a burden on competition not necessary or appropriate in furtherance of the purposes of the Exchange Act. Instead of protecting retail investors, the rule would irreparably harm them by taking away access to critical investment vehicles that they currently rely on. Furthermore, the rule is anti-competitive, since it would not similarly restrict investor access to the prevailing non-inverse (yet still derivative) investment vehicles like index funds. Given the significant market corrections that are currently taking place, the SEC should be promoting certain “leveraged/inverse investment vehicles” instead of trying to kill them, since it is now clear that the one-sided market interventions of central banks over the last 12 years has created unsustainable price inflation in all asset classes that is now starting to unwind, leaving conventional retail investors few alternatives to protect themselves except for certain “leveraged/inverse investment vehicles.” In conclusion, the proposed rule would cause irreparable harm to retail investors by imposing a burden on brokerages that is not necessary or appropriate, resulting in loss of access to critical investment tools that retail investors need to protect themselves. The proposed rule is thus contrary to the Commission’s obligations to protect investors and should be permanently withdrawn.