Subject: N/A
From: John Kerrigan

Mar. 29, 2020

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

Regarding your proposed rule #S7-24-15 to restrict (or at least make more difficult) an individual’s ability to trade Leveraged & Inverse (L&I) ETFs, I would like you to consider the following; 

I have been an active trader of Direxion’s L&I ETFs, almost since their inception in 2008, and it has been a learning process. From the beginning I did not believe that L&I ETFs were long-term investments, no different than options trading. This is especially true in times of market volatility, when the 4:00pm closing to 9:30am opening prices, have sometimes moved as much as +/- 20%. The L&I ETFs were designed to provide profit opportunities, regardless which way the market is moving. The leveraging feature amplifies the magnitude of the gains or losses. They are clearly marketed as high risk, high reward investments. But they are not for the novice or buy-&-hold investor. These facts are clearly stated in the prospectus of the fund. As such, I believe that the requirements for trading L&I ETFs should be minimal, similar to those for margin accounts, or being approved for options trading. 
However, in these days of analog trading, I feel the SEC should be looking into potential price manipulation of L&I ETFs. I will lay out a few recent and ongoing examples of things that just don’t look right. Note that these observations are relative to my trading of Direxion L&I ETFs in my TD Ameritrade accounts. 

1. Pre-pre Market Trading – Trading of the L&I ETFs begins a 4:00am eastern, yet individuals are unable to trade in the AM pre-market, until 7:00am. Who is allowed to make these trades, and what makes them so special? Example on Friday, March 20 TZA closed at $96.98. Between 4:00 & 4:05am on Monday, March 23, 12,800 shares were traded at $106.48. Yet at 8:20 shares traded as low as $80.01, only two rebound as high as $106.55 by 9:45. The early seller obviously had an unfair advantage. 
2. Away from "Market Price" Trades – This one is fresh in my mind since it just happened Friday evening, March 27. From 3:25 to 4:10 the price of TZA ran from $58.01 to $64.61. For the rest of the PM session the price floated between $63.70 and $64.52, with two large exceptions. At 5:35, 11,761 shares traded at a low of $63.00, and then at 7:50, 36,859 shares traded as high as $65.39 (that’s $2.4 million changing hands). Is there an explanation? The buyers and sellers just happened to get together in the thinly traded PM session. I don’t think so. I often have be careful not to get stuck with 500 shares, if I am still holding as 8:00pm approaches, especially on Fridays. 
3. Privacy of “Contingent” Orders - In my TD Ameritrade accounts, I often use contingent sell orders to limit losses or protect gains. I also use them for buy orders, when the market reverses. Over the years, I have been told by several TDAM reps, that these orders are privately held in their computers, until the activation price is hit. “The Market Makers, can’t see them until they activate.” However, while I don’t have detailed documentation, there have been too many instances to be coincidence, where my activation price is hit and within pennies the price trend reverses, leading to losses. Certainly there have been many instances where the stop loss orders have worked properly and limited losses or protected gains. And there have been times when I set the target too tight, based on the day’s volatility. But it sure seems that my contingent sell orders are seen by someone or something, and picked off just before a big move to the upside (and contingent buy orders execute at artificial price peaks, before a downward move). 
4. Coordination of Bull & Bear L&I ETFs – There are times when the coordination between the Bull and Bear L&I ETFs breaks down. While I can’t find the exact example, it happened within the last week, likely Wednesday 3/25/20. I was watching Direxion’s TNA and its inverse TZA. The price of TZA just seemed to freeze at $75.02, with B/A volumes of only 100 or 200 shares. It didn’t move for more than a minute. At the same time TNA moved up 1% to 2%, with thousands of shares traded. When TZA woke up, it was, in seconds, below $74.00. I was looking at both streaming charts on the same monitor, so it wasn’t a screen freeze. Just strange price action between supposedly inversely linked ETFs. 

In closing, I can understand your concern about protecting individual small investors, knowing that L&I ETF’s are inherently high risk. Regular investors should avoid holding these ETFs overnight, except in very small percentages of their portfolios. When trading these products, one’s time horizon should normally be minutes to a few hours. However, instead of protecting investors from themselves, I believe that your efforts would be better if directed at protecting investors from the market itself, and manipulative hedge funds. Actions, in the last couple of weeks, by Bill Ackman (preaching a crashing market, while establishing a massive short position) did more to damage trust in the markets, than anything the SEC could do to protect individual investors. 

Thank you for your consideration of these comments.