March 18, 2020
Re: SEC Release No. 34-87607 IA-5413 IC-33704 File No. S7-24-15
To the SEC:
I am an individual investor who presently invests in leveraged and inverse ETF's. I would like to comment on Section 2 "Proposed Sales Practices Rules for Leveraged/Inverse Investment Vehicles" on Page 181 of the 34-87607 Proposed document.
In my Brokerage Accounts, I use ETF's in various ways.
To reduce risk by trading an ETF as opposed to individual stocks. The latter can become worthless if the company involved goes out of business and files bankruptcy. The "Holdings" data supplied by most ETF's shows that they typically own less than 10% of any individual company.
I have two Brokerage Cash Accounts. In these, I am unable to sell most securities short - not permitted. That means it is not possible to sell short an ETF such as IWM or SMH or XLF. At present, I can buy the corresponding inverse ETF - a very useful alternate approach when there is a down-trend in the market. There would be a very undesirable effect on us individual investors if the SEC were to restrict the ability for us to buy and later sell the inverse ETF's in a Brokerage Cash Account.
The leveraged 2X and 3X ETF's, both Bull and Bear, are useful for hedging and taking advantage of short-term movements in pricing.
I have an account where the brokerage sends me periodic notices about the risks of ETF's. For an account at a different brokerage, a warning notice is popped up on each opening trade of an ETF.
It is not clear to me that there is a need for any new SEC regulation in the area of granting or restricting access to leveraged and inverse ETF's for individual investors.
If the SEC does conclude that some regulation is needed for brokerages to qualify and approve individual investors to trade ETF's, I would ask that the threshold for account approval to execute trades be kept as low as possible. I believe that as many investors as possible should have the opportunity to participate in the trading of ETF's.
Los Altos, CA 94024