February 1, 2020
1. Recent trends in the brokerage industry made personal investing far more widely accessible. Of equal importance, competition between new, app-based brokers and legacy trading platforms has resulted in significant pro-consumer benefits. Regulations that impose additional record-keeping and due diligence responsibilities on the buying and selling of publicly-traded securities deters new entrants, stifles innovation, and reduces pressure to lower costs, commissions, and fees.
2. At present, the SEC's attitude toward leveraged and inverse (especially daily-resetting) products assumes retail usage of these funds is exclusively based on short-term trading, and therefore focuses excessively on the risks of these products when considered in isolation. This view discounts emerging strategies of utilizing allocations to these products to concentrate exposure to specific risks within the context of a larger, diversified portfolio.
3. In implementing the types of strategies alluded to in point 2, the primary impediment to effective use of these funds today remains their high expense ratio per unit exposure compared to their unleveraged reference indices. Proposed regulations that increase the compliance burden on fund providers could have two effects:
A. Higher administrative cost to implement the compliance measures which would be passed on directly to existing investors.
B. A chilling effect on the introduction of new leveraged and inverse funds tracking the same reference index as an existing fund operating under prior exemptive relief, which again would limit competition and disadvantage the retail investor.
4. While I was alerted to this proposed regulation by a fund provider in whose leveraged products I personally invest, and share their concern with measures which may limit, restrict, or burden the use of leveraged and inverse products by the investing public, I also recognize, as an independent investor, that they are not without conflict of interest in regard to the proposed amendment to rule 6c-11 , insofar as their leveraged products, which are offered under exemptive relief granted prior to 2009, would face competition in the marketplace should the proposed amendment be adopted. Therefore, and notwithstanding the issues raised in point 3, I support in principle the intent of the proposed rule 18f-4 to regularize the exemption of leveraged and inverse products offered under the Investment Company Act provided it can be implemented with a minimum of encumbrance, restriction, or cost to the investing public.