Recent regulatory actions connected to the sale of leveraged and inverse ETFs are creating new risks for online brokers that allow investors to buy the complex products, Reuters reports.
“All of the major discount brokerages are trying to figure this out,” said Scott Burns, director of ETF research at Morningstar, in the article. “The challenge is (that) they want to be the facilitator for all of investors’ trades, but they are trying to figure out what their responsibilities are.”
Earlier this week, the Financial Industry Regulatory Authority fined four brokers a total of $9.1 million over inappropriate sales of leveraged and inverse ETFs. Wells Fargo (NYSE: WFC), Citigroup (NYSE: C), Morgan Stanley (NYSE: MS) and UBS (NYSE: UBS) were sanctioned.
FINRA said the financial companies were fined for selling leveraged and inverse ETFs “without reasonable supervision and for not having a reasonable basis for recommending the securities.” [Banks Fined Over Leveraged and Inverse ETF Sales]
Leveraged and inverse ETFs account for a relatively small portion of the U.S. ETF market, at just under $30 billion of the $1.2 trillion industry.
Some online brokerages are considering extra measures to warn investors about the risks of such products before they buy, Reuters reported.
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