Subject: File No. S7-24-15
From: Jonathan Appelbaum

February 26, 2020

I do not agree with the proposed sales practices rule. The proposed rule would require the firm to (1) approve the retail investors account for buying and selling shares of leveraged/inverse investment vehicles pursuant to a due diligence requirement and (2) adopt and implement policies and procedures reasonably designed to achieve compliance with the proposed rules.

I do not believe that a firm can assess whether an individual retail investor is suitably qualified to invest in leveraged/inverse funds. First, it is a subjective evaluation. Second it is an individual choice to invest in a fund and an investor can just not state the truth. I think the proposed screening process is of very little value to the firm and to the investor.

All investments carry risk. All investment instruments (maybe except for US Treasuries) carry risk. Stocks can crash by mismanagement or unforeseen events. The value of bonds can go to zero with sudden increases in interest rates. Investing in foreign nation instruments can sour with political turmoil. Every commercial I hear about trading foreign currency contains a warning that this is risky.

Investing in a leveraged/inverse fund is not the same as trading options. Trading options requires knowledge of unique terminology like call, put, and margin, trading strategies like collars and straddles, and an understanding of the risk exposure unique to these instruments. Trading a leveraged/inverse is simply investing in a fund with a unique risk profile.

This rule is being proposed because most leveraged/inverse funds could not satisfy the limit on fund leverage risk in proposed rule 18f-4 because they provide leveraged or inverse market exposure exceeding 150% of the return or inverse return of the relevant index. These funds therefore would fail the relative VaR test and would not be eligible to use the absolute VaR test. The proposal of an alternate test is agreeable but it ignores the responsibility an investor has to practice due diligence when investing. The Commission should not relieve the investor from their responsibilities and create an arbitrary screening process for firms to apply. If the investor reads the fund prospects then it is apparent that the upside potential is married to a downside risk. It is the investor's responsibility to read the prospectus and understand the fund's investing strategy. I believe that if the Commission chooses to proceed with some version of this rule then it should limit it to a requirement that firms provide retail investors a short, plain-English disclosure generally describing the risks associated with leveraged/inverse investment vehicles as part of the proposed account approval process. For example, before a firm approves a retail investors account for buying and selling shares of a leveraged/inverse investment vehicle, the firm can provide a short plain English statement of the specific risk factors associated with leveraged/inverse investment vehicles (such as the risks related to compounding and other risks that leveraged/inverse funds disclose in their prospectuses).