March 23, 2020
To the Commissioners:
I am writing to you to express my concern about an unprecedented proposal from the Securities and Exchange Commission (Release No. 34-87607, file S7-24-15, dated November 25, 2019) that would make it more difficult, or impossible, for ordinary investors to buy inverse and leveraged funds.
Under the proposed regulations, individual investors such as myself would have to provide extensive personal financial and other information, to determine if we can buy leveraged and inverse funds. We would be required whether we make our own investment decisions or engage a financial professional to make those decisions on our behalf.
The proposed rules are unnecessarily burdensome and would block many investors from using these products, unfairly restricting them to professionals or institutions and depriving most investors from both the hedge protection and enhanced returns afforded by such products. We already have enough of that with the restrictions around private markets. The recent market decline once again demonstrated the benefit of hedging.
No significant, specific problem has been exposed that motivates the proposed rules. The proposal sets a bad precedent as well, breaking with many decades of allowing investors to freely trade publicly traded securities, guided by their needs and goals. In the case of a particular product — like the notorious quadruple leveraged volatility products popular a couple years ago, until they crashed into oblivion — that offers extreme danger and rapid decay, it perhaps should be banned outright. But such cases are rare.
While there is a need for investors to understand the daily reset feature (exponential decay) of inverse and leveraged products, the proposed rules are unnecessarily complex and lack clear purpose. It would be better to adopt a lightweight process, similar to options, if safeguards are to be imposed to protect the unwary.
Dallas C. Kennedy,