WSJ’s Lauricella thinks warnings for individual investors before purchasing leveraged ETFs are appropriate.
“After all, when investors use another form of leverage—margin accounts—brokerage firms are mandated to provide upfront disclosure about the risks involved. Margin accounts also have mandated limits designed to protect investors,” he wrote.
“Perhaps a better question for regulators is why leveraged ETPs should even be accessible to small investors. Might regulators take a page from hedge-fund rules and limit leveraged ETPs to ‘accredited investors’ with a net worth of $1 million? Or to professional investors and traders?” Lauricella added.
The idea of regulators placing restrictions on leveraged ETFs is speculation at this point.
The Financial Industry Regulatory Authority recently fined four brokerage firms a collective $9.1 million over improper sales of leveraged and inverse ETFs.
Leveraged and inverse ETFs and ETNs account for a tiny fraction of the total $1.2 trillion exchange traded product business in the U.S. At the end of April, leveraged and inverse products held about $31.5 billion in assets, according to ETF Industry Association data.