February 19, 2020
Members of the Securities and Exchange Commission:
I fully agree with Mr. Sapir of ProShares that proposed rule #S7-24-15, affecting the ability to buy leveraged and inverse funds, is inappropriate and should be withdrawn. I will not restate his arguments here. These funds are very important to me and I object to any action
that could make these investment options unavailable - a real possibility since some brokerage firms might stop offering these funds
due to the difficulty of implementing the regulations.
I presume that the new rules are motivated by the beliefs that 1) these funds are excessively risky and 2) without the new rules, investors will not understand the risks. I dispute both premises. The risks are already documented in the prospectuses, which investors are expected to read and understand. Moreover, the funds are no riskier than alternatives such as options and small-cap stocks, which can be traded without a qualification process such as S7-24-15.
I must point out that leveraged funds can actually reduce the risk in a portfolio, by reducing the amount that must be invested to achieve some goal. What has greater risk short-term: an investment of some amount in QQQ, or an investment of one-third as much in TQQQ? They are equivalent positions in short-term profit potential, but in the event of a 50% decline in QQQ, the TQQQ investor loses less money, even if TQQQ goes to zero. If investments like TQQQ become unavailable, we will lose this ability to de-risk our portfolios.
I therefore urge you to give serious consideration to the arguments above, and to withdraw S7-24-15.