SEC Reportedly Probing Whether ETFs Added to Market Volatility
September 7th at 8:04am by John Spence
The Securities and Exchange Commission is looking into whether leveraged exchange traded funds magnified the volatile swings the stock market experienced last month, The Wall Street Journal reported.
Regulators have interviewed companies that trade ETFs and the inquiry is part of a broader examination into sophisticated financial products and high-frequency trading, the newspaper said.
Thomas Peterffy, chief executive of Interactive Brokers Group, told the SEC that ETF trading can produce big swings anytime during the day, according to the report.
The CEO told regulators that “many high-frequency traders go with the momentum by [trading ETFs] in the direction the market is moving,” WSJ reported.
Morningstar ETF researcher Scott Burns told the newspaper that although leveraged ETF trading jumped along with market volatility in August, they likely didn’t play a major role in the swings because not enough cash is invested in the funds.
Leveraged exchange traded products hold assets of $35 billion, with short and ultra-short products accounting for about $22 billion of the total, according to a recent report from Barclays Capital. There is about $1 trillion invested in all ETFs. [Understanding the Basics of Leveraged ETFs]
