Leveraged ETF Ban Spreading Like a Virus
By Michael Comeau Aug 04, 2009 12:00 pm
It's nothing but investor losses, frustration motivating this pandemic.
UBS (UBS), Ameriprise (AMP), Raymond James (RJF), Edward Jones, and LPL Financial are either getting out of leveraged ETFs altogether or curtailing client activity in them. Some market pundits claim that these wealth-management-oriented firms are merely focusing on long-term instruments for their clients, because as we all know, Wall Street never chases short-term profits at the expense of the world around it. It has absolutely nothing to do with compliance officers and lawyers freaking out about the inevitable wave of lawsuits that are on the way.
It's all really too bad, because the growing anti-leveraged ETF movement is all just a way of absolving investors and their advisors of personal responsibility.
Let me make something clear: I really don't give a damn about leveraged ETFs. I've never owned one, traded one, or recommended one. At one point, I was tempted to play with the Direxion Daily Financial Bear 3X Shares (FAZ), but decided I didn't want to live with the volatility. I also didn't like all the gobbledygook in the prospectus about potential tracking errors versus the underlying.
What I do give a damn about is investors who may find these instruments useful, losing access to and liquidity in them, as fewer brokers deal in ETFs.
But Mike, you say, "People don't really understand these leveraged ETFs. You can't possibly expect them to pick up a prospectus and get just how dangerous these instruments are!"Now that's fair enough. Maybe the regulators really do need to protect people from themselves.
Please.
How many people read the Characteristics and Risks of Standardized Options document issued by the CBOE? You know -- the one that "must be read by an investor prior to buying or selling options contracts." So why don't we just ban people from trading options? Like leveraged ETFs, people might not understand them and therefore they must be protected.
Position in RJF.
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Copyright 2009 Minyanville Media, Inc. All Rights Reserved.
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Reply
2009-08-04 09:18:19
TDAmeritrade
The one main reason these won't be banned to retail punters is the amount of money "Chuck" and TDAmeritrade - and hence everyone upstream - make off of commissions with people moving in and out of them like parking spots at the mall on Christmas eve.
Let's face it, we hold them about as long as Jessica Simpson keeps a man. And for the same reason...everyone wants to be a rockstar for 15 minutes of fame, but no one wants to wake up Ozzy.
Let's face it, we hold them about as long as Jessica Simpson keeps a man. And for the same reason...everyone wants to be a rockstar for 15 minutes of fame, but no one wants to wake up Ozzy.
2009-08-04 09:39:20
Schwab may be playing both sides of the fence here. According to the WSJ:
"Responding to questions regarding its policy, Charles Schwab said in an email that its representatives do not recommend leveraged ETFs, but investors can buy or sell the instruments on their own through the company."
They obviously like the commissions and this is an effective way of avoiding some of the fallout.
"Responding to questions regarding its policy, Charles Schwab said in an email that its representatives do not recommend leveraged ETFs, but investors can buy or sell the instruments on their own through the company."
They obviously like the commissions and this is an effective way of avoiding some of the fallout.
2009-08-04 13:51:57
Flash trading
I see they are at last going to ban it, but of course all will be the same for as long as possible because..
"A proposal to eliminate the orders would still have to be approved by the entire commission and be open to public comment before being implemented."
It is not fair that those with fast computers get a sneak preview, how about banning it first and then doing something? They were fast enough to ban shorting just like that weren't they? But of course this is GS bumper profits and bonuses at risk here so got to give them PLENTY of time to close out first and go short don't they!!!
Disgusting
"A proposal to eliminate the orders would still have to be approved by the entire commission and be open to public comment before being implemented."
It is not fair that those with fast computers get a sneak preview, how about banning it first and then doing something? They were fast enough to ban shorting just like that weren't they? But of course this is GS bumper profits and bonuses at risk here so got to give them PLENTY of time to close out first and go short don't they!!!
Disgusting
2009-08-04 15:04:58
agents
The same disclaimer could be issued for options, along with the rest of the risky-type investments the article describes. But, they will execute the trade. They are just the agent; reponsibility for the choices made lies with the principal - i.e., you, the "retail punter".
2009-08-04 15:08:49
Flash trading
HFT is little different than the traditional "bid-ask spread" profit opportunity, which is the life-blood of market-making.
Once you allow multiple platforms and "pools of liquidity" to exist, you've essentially created the requirement for sophisticated communications and routing software. Adding on to that capability is natural.
Innovation begets innovation. Defense begets offense. The "flash order" flavor HFT is a direct response to the "dark pool" phenomenon, which (I say unfairly) limits market visibility.
Once you allow multiple platforms and "pools of liquidity" to exist, you've essentially created the requirement for sophisticated communications and routing software. Adding on to that capability is natural.
Innovation begets innovation. Defense begets offense. The "flash order" flavor HFT is a direct response to the "dark pool" phenomenon, which (I say unfairly) limits market visibility.
2009-08-04 15:51:19
No offense but you must not know the regulatory environment we live in. Im at a regioal broker deal that has banned these investments except for the one that shorts treasuries.
The only reason these are being banned is that lawyers are already circling around looking for their next kill. I love these things for the sheer craziness of them. A client can understand these things and put in an unsolicited order and still come back later and sue. Even if the broker is right and has documentation, the firm would rather settle because it is cheaper to avoid arbitration. However, we still get an X on our U-4. Yay!
It aint fair and it aint right but that is the way it is. There is no personal responsibility anymore. Didn't you get the memo?
The only reason these are being banned is that lawyers are already circling around looking for their next kill. I love these things for the sheer craziness of them. A client can understand these things and put in an unsolicited order and still come back later and sue. Even if the broker is right and has documentation, the firm would rather settle because it is cheaper to avoid arbitration. However, we still get an X on our U-4. Yay!
It aint fair and it aint right but that is the way it is. There is no personal responsibility anymore. Didn't you get the memo?
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