Subject: File No. S7-24-15
From: Mark Gorman

January 27, 2016

On or near pages 107-108 of ic-31933 you ask, Should we consider a higher limit for ETFs (or other funds) that seek to replicate the leveraged or inverse performance of an index? and nearby you ask other questions about limiting inverse and leveraged products. I would like you to consider the following.

In general, now is a terrible time to limit inverse products. We have just come off something like a five year period, where stocks have largely gone up with very few corrects. Only in the last 6 months or less have we started to have a correction that may expand to a bear market. This means that we have not had the need for inverse products for a long time. It is far less likely that average investors will not need such products in the next five years. For the system to work properly for average investors, most should have inverse products to counterbalance their downside risk. This means, we would be best off by promoting more inverse ETFs where we can balance our risk. This makes sense, because that it reflects a normal variability market. The result of not having such products means that in a large market downturn, normal investors will see their wealth destroyed and normal investors will probably feel like lambs being lead to the slaughter.

What would give unsophisticated investors their best opportunity to use something closest to the invest and hold strategy generally promoted for us is to encourage us to hedge our risk by including a small amount of money in an inverse ETF with a multiple. This is not that dissimilar to the spreading the risk across companies and sectors that most brokers and advisors promote so it should be a relatively easy adjustment for them. It is far easier than the harm of not having available products.

Regarding transparency of ETFs using inverse and leverage, transparency is always a good idea but it should be easy to understand and brief.