May 4, 2020
SEC,
I implore you to reconsider the proposed restriction on the purchase of leveraged/inverse ETFs by retail investors. I believe that (1) it is a restriction on my liberties as an investor, and (2) it's likely that the new rule would negatively impact low-wealth but highly educated investors such as myself.
(1). The first point needs little explanation. If I as a free, tax-paying citizen wish to invest my own money in a risky way -- a way which still only allows me to lose as much money as I put in -- then I should be allowed to make that decision.
I'm an adult: I can read a prospectus I can find the overly-simplistic warning at https://www.sec.gov/investor/pubs/leveragedetfs-alert.htm about how geometric means are smaller than arithmetic ones (and, personally, I can do my own historical + simulated analyses of leveraged vs. underlying fund performance, and decide that I'm still interested in leveraged ETFs despite what the SEC suggests).
(2). If I could trust the approval process to not prevent knowledgeable investors from purchasing leveraged ETFs, then I wouldn't bother writing this diatribe. But frankly I don't have that trust. I view this proposed restriction as being similar in theme to requiring approval for level 1 options trading, which I recently struggled to acquire, so I would like to briefly describe that experience in order to highlight my current reservations:
I'm a graduate student in physics. As a young investor with a high risk tolerance, I had been seeking ways to make leveraged, diversified investments, and (other than leveraged ETFs, the subject of this comment) purchasing index fund LEAPS was one of the ways I chose to pursue that. However... Despite weeks of diligent independent research (geometric brownian motion, Black-Scholes, Implied Volatility, etc.) before even applying for level 1 options approval (the kind where you can only lose as much as you spend on the contract), I was rejected by a major brokerage, due to my low account value and lack of experience.
I'll summarize: High-risk strategies (level 1 options, potentially leveraged ETFs) are often restricted from individuals with low-income/small account balance and/or little experience. But what do those factors generally correspond to? Young investors Exactly the demographic that should be taking riskier positions, while they still have 30+ years to recover...
I sincerely hope you reconsider this proposal. I think it's likely to do more harm than good, because it will most heavily restrict the class of investors for which leveraged products are most sensible.