The SEC and FINRA are finally stepping up to regulate nontraditional ETFs and ETNs and to ensure that these complicated products are not sold to unsophisticated investors.
Citigroup Global Markets Inc., Morgan Stanley, UBS Financial Services Inc. and Wells Fargo recently agreed to pay $9.1 million to settle allegations that they sold leveraged and inverse exchange-traded funds to clients who had no business investing in the complex instruments.
In its first actions against firms that put clients in these products, FINRA said the four wirehouses experienced supervisory failures and lacked a "reasonable basis" for recommending the securities to certain clients. Together, the firms bought and sold $27 billion of the nontraditional ETFs from January 2008 through June 2009, FINRA said.
The firms agreed to pay the fines of $7.3 million and restitution of $1.8 million without admitting or denying the allegations.
These sanctions are likely only the beginning as it is now clear that ETFs and ETNs are a significant problem for the brokerage industry.
In March 2010, the SEC stopped approving applications for ETFs that use derivatives and indicated that it wants to review whether additional investor protections are warranted, particularly for leveraged and inverse ETFs.
FINRA and the SEC's involvement in these products is a result of the leverage and risks associated with these investments and the concern that such investments can be confused with less risky and more traditional ETFs.
The more exotic ETFs are riskier because they reset daily and use leverage and compounding. Results of leveraged and inverse ETFs can differ significantly from the performance of the underlying index, especially when held for long periods of time and during volatile markets.
FINRA and the SEC published a joint investor alert in 2009 warning that leveraged and inverse ETFs are complicated investments that focus on meeting daily performance goals. The agencies said long-term performance is likely to be very different than the investment's stated daily objectives, and recommended that investors discuss the products with an investment professional.
The following is a list of some of the ETFs and ETNs currently available:
BGZ - Direxion Daily Large Cap Bear 3X Shares ETF
BIS - UltraShort NASDAQ Biotechnology ETF
BRIS - Direxion Daily BRIC Bear 3x Shares ETF
BXDB - Barclays Short B Leveraged Inverse S&P 500 Total Return ETN
COWS - Direxion Daily Agribusiness Bear 3x Shares ETF
DDG - Short Oil & Gas ProShares ETF
DGLD - 3x Inverse Gold ETN
DLBS - iPath US Treasury Long Bond Bear ETN
DMM - MacroShares Housing Down ETF
DNO - United States Short Oil ETF
DOG - Short Dow30 ProShares ETF
DOY - MacroShares $100 Oil Down ETF
DPK - Direxion Daily Devloped Markets Bear 3X Shares ETF
DSLV - 3x Inverse Silver ETN
DSTJ - JP Morgan 2X Short US Long Treasury Futures ETN
DSXJ - JP Morgan 2X Short US 10 Year Treasury Futures ETN
DUG - UltraShort Oil & Gas ProShares ETF
DUST - Direxion Daily Gold Miners Bear 3x Shares ETF
DXD - UltraShort Dow 30 ProShares ETF
EDZ - Direxion Daily Emerging Markets Bear 3X Shares ETF
EEV - UltraShort MSCI Emerging Markets ProShares ETF
EFU - UltraShort MSCI EAFE ProShares ETF
EFZ - Short MSCI EAFE ProShares ETF
ERY - Direxion Daily Energy Bear 3X Shares ETF
EUM - Short MSCI Emerging Markets ProShares ETF
EUO - ProShares UltraShort Euro ETF
EWV - UltraShort MSCI Japan ProShares ETF
FAZ - Direxion Daily Financial Bear 3X Shares ETF
FXP - UltraShort FTSE/Xinhua China25 Proshares ETF
GASX - Direxion Daily Natural Gas Related Bear 3X Shares ETF
GLL - UltraShort Gold ProShares ETF
INDZ - Direxion Daily India Bear 3x Shares ETF
IPAL - 2x Inverse Palladium ETN
IPLT - 2x Inverse Platinum ETN
KRS - Short KBW Regional Banking ETF
KOLD - UltraShort DJ-UBS Natural Gas ETF
LHB - Direxion Daily Latin America 3x Bear Shares ETF
MATS - Direxion Daily Basic Materials Bear 3X Shares ETF
MWN - Direxion Daily Mid Cap Bear 3X Shares ETF
MYY - Short MidCap400 ProShares ETF
MZZ - UltraShort MidCap400 ProShares ETF
PSQ - Short QQQ ProShares ETF
PST - ProShares UltraShort 7-10 Year Treasury ETF
QID - UltraShort QQQ ProShares ETF
QLD - Ultra QQQ ProShares ETF
REK - ProShares Short Real Estate ETF
RETS - Direxion Daily Retail Bear 3X Shares ETF
REW - UltraShort Technology ProShares ETF
RINF - ProShares 30 Year TIPS/TSY Spread ETF
RSW - Rydex Inverse 2x S&P 500 ETF
RUSS - Direxion Daily Russia Bear 3x Shares ETF
RWM - Short Russell2000 ProShares ETF
RXD - UltraShort Health Care ProShares ETF
SAGG - Daily Total Bond Market Bear 1x Shares ETF
SBB - ProShares Short S&P SmallCap600 ETF
SBM - ProShares Short Basic Materials ETF
SCC - ProShares UltraShort Consumer Services ETF
SCO - ProShares UltraShort DJ-AIG Crude Oil ETF
SDD - ProShares UltraShort SmallCap600 ETF
SDK - ProShares UltraShort MidCap Growth ETF
SDOW - UltraPro Short Dow 30 ETF
SDP - ProShares UltraShort Utilities ETF
SDS - ProShares UltraShort S&P500 ETF
SEF - Short Financials ProShares ETF
SFK - ProShares UltraShort Russell1000 Growth ETF
SH - ProShares Short S&P500 ETF
SICK - Direxion Daily Healthcare Bear 3X Shares ETF
SIJ - ProShares UltraShort Industrials ETF
SJB - ProShares Short High Yield ETF
SJH - UltraShort Russell2000 Value ProShares ETF
SJL - ProShares UltraShort MidCap Value ETF
SFK - UltraShort Russell1000 Growth ProShares ETF
SKK - UltraShort Russell 2000 Growth ProShares ETF
SMDD - UltraPro Short Mid-Cap 400 ETF
SMN - ProShares UltraShort Basic Materials ETF
SOXS - Direxion Daily Semiconductor Bear 3x Shares ETF
SPXU - ProShares Ultra Pro Short S&P 500 ETF
SQQQ - UltraPro Short QQQ ETF
SRS - ProShares UltraShort Real Estate ETF
SRTY - UltraPro Short Russell 2000 ETF
SSG - ProShares UltraShort SemiConductor ETF
SVXY - ProShares Short VIX Short-Term Futures ETF
SZK - ProShares UltraShort Consumer Goods ETF
TBF - ProShares Short 20+ Year Treasury ETF
TBT - ProShares UltraShort 20+ Year Treasury ETF
TBX - Short 7-10 Year Treasury ETF
TBZ - UltraShort 3-7 Year Treasury ETF
TLL - ProShares UltraShort Telecommunications ETF
TMV - Direxion Daily 30-year Treasury Bear 3x Shares ETF
TOTS - Direxion Daily Total Market Bear 1X Shares ETF
TPS - ProShares UltraShort TIPS ETF
TTT - UltraPro Short 20+ Year Treasury ETF
TWM - UltraShort Russell 2000 ProShares ETF
TYBS - Daily 20 Year Plus Treasury Bear 1x Shares ETF
TYNS - Daily 7-10 Year Treasury Bear 1x Shares ETF
TYO - Direxion Daily 10-year Treasury Bear 3x Shares ETF
TYP - Direxion Daily Technology Bear 3x Shares ETF
TZA - Direxion Daily SmallCap Bear 3x Shares ETF
TWQ - ProShares UltraShort Russell 3000 Index ETF
UDN - PowerShares US Dollar Bearish ETF
YCS - ProShares UltraShort Yen ETF
YXI - Proshares Short FTSE / Xinhua China 25 ETF
ZSL - ProShares UltraShort Silver ETF
AGA - PowerShares DB Agriculture Double Short ETN
BOM - PowerShares DB Base Metals Double Short ETN
DDP - PowerShares DB Commodity Short ETN
DEE - PowerShares DB Commodity Double Short ETN
DGZ - PowerShares DB Gold Short ETN
DRR - Market Vectors Double Short Euro ETN
DTO - PowerShares DB Crude Oil Double Short ETN
DTUS - iPath US Treasury 2-year Bear ETN
DTYS - iPath US Treasury 10-year Bear ETN
DZZ - PowerShares DB Gold Double Short ETN
EMSA - iPath Short Enhanced MSCI Emerging Markets Index ETN
IVOP - iPath Inverse S&P 500 VIX Short-Term Futures ETN
JGBS - PowerShares DB Inverse Japanese Government Bond Futures ETN
JGBD - PowerShares DB 3x Inverse Japanese Government Bond Futures ETN
MFSA - iPath Short Enhanced MSCI EAFE Index ETN
MLPS - UBS E-TRACS 1x Monthly Short Alerian MLP Infrastructure Total Return Index ETN
ROSA - iPath Short Extended Russell 1000 TR Index ETN
RTSA - iPath Short Extended Russell 2000 TR Index ETN
SBND - PowerShares DB 3X Short 25+ Year Treasury Bond Exchange Traded Note ETN
SFSA - iPath Short Extended S&P 500 TR Index ETN
SZO - PowerShares DB Crude Oil Short ETN
UDNT - PowerShares DB 3x Short US Dollar Index Futures ETN
XXV - Barclays ETN+ Inverse S&P 500 VIX Short-Term Futures ETN
XIV - VelocityShares Daily Inverse VIX Short Term ETN
ZIV - VelocityShares Daily Inverse VIX Mid Term ETN
Each of these investments are examples of some of the high-risk inverse ETFs and ETNs which are not suitable for unsophisticated, long-term investors.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Mr. Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. Our law firm is devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.
Citigroup Global Markets Inc., Morgan Stanley, UBS Financial Services Inc. and Wells Fargo recently agreed to pay $9.1 million to settle allegations that they sold leveraged and inverse exchange-traded funds to clients who had no business investing in the complex instruments.
In its first actions against firms that put clients in these products, FINRA said the four wirehouses experienced supervisory failures and lacked a "reasonable basis" for recommending the securities to certain clients. Together, the firms bought and sold $27 billion of the nontraditional ETFs from January 2008 through June 2009, FINRA said.
The firms agreed to pay the fines of $7.3 million and restitution of $1.8 million without admitting or denying the allegations.
These sanctions are likely only the beginning as it is now clear that ETFs and ETNs are a significant problem for the brokerage industry.
In March 2010, the SEC stopped approving applications for ETFs that use derivatives and indicated that it wants to review whether additional investor protections are warranted, particularly for leveraged and inverse ETFs.
FINRA and the SEC's involvement in these products is a result of the leverage and risks associated with these investments and the concern that such investments can be confused with less risky and more traditional ETFs.
The more exotic ETFs are riskier because they reset daily and use leverage and compounding. Results of leveraged and inverse ETFs can differ significantly from the performance of the underlying index, especially when held for long periods of time and during volatile markets.
FINRA and the SEC published a joint investor alert in 2009 warning that leveraged and inverse ETFs are complicated investments that focus on meeting daily performance goals. The agencies said long-term performance is likely to be very different than the investment's stated daily objectives, and recommended that investors discuss the products with an investment professional.
The following is a list of some of the ETFs and ETNs currently available:
BGZ - Direxion Daily Large Cap Bear 3X Shares ETF
BIS - UltraShort NASDAQ Biotechnology ETF
BRIS - Direxion Daily BRIC Bear 3x Shares ETF
BXDB - Barclays Short B Leveraged Inverse S&P 500 Total Return ETN
COWS - Direxion Daily Agribusiness Bear 3x Shares ETF
DDG - Short Oil & Gas ProShares ETF
DGLD - 3x Inverse Gold ETN
DLBS - iPath US Treasury Long Bond Bear ETN
DMM - MacroShares Housing Down ETF
DNO - United States Short Oil ETF
DOG - Short Dow30 ProShares ETF
DOY - MacroShares $100 Oil Down ETF
DPK - Direxion Daily Devloped Markets Bear 3X Shares ETF
DSLV - 3x Inverse Silver ETN
DSTJ - JP Morgan 2X Short US Long Treasury Futures ETN
DSXJ - JP Morgan 2X Short US 10 Year Treasury Futures ETN
DUG - UltraShort Oil & Gas ProShares ETF
DUST - Direxion Daily Gold Miners Bear 3x Shares ETF
DXD - UltraShort Dow 30 ProShares ETF
EDZ - Direxion Daily Emerging Markets Bear 3X Shares ETF
EEV - UltraShort MSCI Emerging Markets ProShares ETF
EFU - UltraShort MSCI EAFE ProShares ETF
EFZ - Short MSCI EAFE ProShares ETF
ERY - Direxion Daily Energy Bear 3X Shares ETF
EUM - Short MSCI Emerging Markets ProShares ETF
EUO - ProShares UltraShort Euro ETF
EWV - UltraShort MSCI Japan ProShares ETF
FAZ - Direxion Daily Financial Bear 3X Shares ETF
FXP - UltraShort FTSE/Xinhua China25 Proshares ETF
GASX - Direxion Daily Natural Gas Related Bear 3X Shares ETF
GLL - UltraShort Gold ProShares ETF
INDZ - Direxion Daily India Bear 3x Shares ETF
IPAL - 2x Inverse Palladium ETN
IPLT - 2x Inverse Platinum ETN
KRS - Short KBW Regional Banking ETF
KOLD - UltraShort DJ-UBS Natural Gas ETF
LHB - Direxion Daily Latin America 3x Bear Shares ETF
MATS - Direxion Daily Basic Materials Bear 3X Shares ETF
MWN - Direxion Daily Mid Cap Bear 3X Shares ETF
MYY - Short MidCap400 ProShares ETF
MZZ - UltraShort MidCap400 ProShares ETF
PSQ - Short QQQ ProShares ETF
PST - ProShares UltraShort 7-10 Year Treasury ETF
QID - UltraShort QQQ ProShares ETF
QLD - Ultra QQQ ProShares ETF
REK - ProShares Short Real Estate ETF
RETS - Direxion Daily Retail Bear 3X Shares ETF
REW - UltraShort Technology ProShares ETF
RINF - ProShares 30 Year TIPS/TSY Spread ETF
RSW - Rydex Inverse 2x S&P 500 ETF
RUSS - Direxion Daily Russia Bear 3x Shares ETF
RWM - Short Russell2000 ProShares ETF
RXD - UltraShort Health Care ProShares ETF
SAGG - Daily Total Bond Market Bear 1x Shares ETF
SBB - ProShares Short S&P SmallCap600 ETF
SBM - ProShares Short Basic Materials ETF
SCC - ProShares UltraShort Consumer Services ETF
SCO - ProShares UltraShort DJ-AIG Crude Oil ETF
SDD - ProShares UltraShort SmallCap600 ETF
SDK - ProShares UltraShort MidCap Growth ETF
SDOW - UltraPro Short Dow 30 ETF
SDP - ProShares UltraShort Utilities ETF
SDS - ProShares UltraShort S&P500 ETF
SEF - Short Financials ProShares ETF
SFK - ProShares UltraShort Russell1000 Growth ETF
SH - ProShares Short S&P500 ETF
SICK - Direxion Daily Healthcare Bear 3X Shares ETF
SIJ - ProShares UltraShort Industrials ETF
SJB - ProShares Short High Yield ETF
SJH - UltraShort Russell2000 Value ProShares ETF
SJL - ProShares UltraShort MidCap Value ETF
SFK - UltraShort Russell1000 Growth ProShares ETF
SKK - UltraShort Russell 2000 Growth ProShares ETF
SMDD - UltraPro Short Mid-Cap 400 ETF
SMN - ProShares UltraShort Basic Materials ETF
SOXS - Direxion Daily Semiconductor Bear 3x Shares ETF
SPXU - ProShares Ultra Pro Short S&P 500 ETF
SQQQ - UltraPro Short QQQ ETF
SRS - ProShares UltraShort Real Estate ETF
SRTY - UltraPro Short Russell 2000 ETF
SSG - ProShares UltraShort SemiConductor ETF
SVXY - ProShares Short VIX Short-Term Futures ETF
SZK - ProShares UltraShort Consumer Goods ETF
TBF - ProShares Short 20+ Year Treasury ETF
TBT - ProShares UltraShort 20+ Year Treasury ETF
TBX - Short 7-10 Year Treasury ETF
TBZ - UltraShort 3-7 Year Treasury ETF
TLL - ProShares UltraShort Telecommunications ETF
TMV - Direxion Daily 30-year Treasury Bear 3x Shares ETF
TOTS - Direxion Daily Total Market Bear 1X Shares ETF
TPS - ProShares UltraShort TIPS ETF
TTT - UltraPro Short 20+ Year Treasury ETF
TWM - UltraShort Russell 2000 ProShares ETF
TYBS - Daily 20 Year Plus Treasury Bear 1x Shares ETF
TYNS - Daily 7-10 Year Treasury Bear 1x Shares ETF
TYO - Direxion Daily 10-year Treasury Bear 3x Shares ETF
TYP - Direxion Daily Technology Bear 3x Shares ETF
TZA - Direxion Daily SmallCap Bear 3x Shares ETF
TWQ - ProShares UltraShort Russell 3000 Index ETF
UDN - PowerShares US Dollar Bearish ETF
YCS - ProShares UltraShort Yen ETF
YXI - Proshares Short FTSE / Xinhua China 25 ETF
ZSL - ProShares UltraShort Silver ETF
AGA - PowerShares DB Agriculture Double Short ETN
BOM - PowerShares DB Base Metals Double Short ETN
DDP - PowerShares DB Commodity Short ETN
DEE - PowerShares DB Commodity Double Short ETN
DGZ - PowerShares DB Gold Short ETN
DRR - Market Vectors Double Short Euro ETN
DTO - PowerShares DB Crude Oil Double Short ETN
DTUS - iPath US Treasury 2-year Bear ETN
DTYS - iPath US Treasury 10-year Bear ETN
DZZ - PowerShares DB Gold Double Short ETN
EMSA - iPath Short Enhanced MSCI Emerging Markets Index ETN
IVOP - iPath Inverse S&P 500 VIX Short-Term Futures ETN
JGBS - PowerShares DB Inverse Japanese Government Bond Futures ETN
JGBD - PowerShares DB 3x Inverse Japanese Government Bond Futures ETN
MFSA - iPath Short Enhanced MSCI EAFE Index ETN
MLPS - UBS E-TRACS 1x Monthly Short Alerian MLP Infrastructure Total Return Index ETN
ROSA - iPath Short Extended Russell 1000 TR Index ETN
RTSA - iPath Short Extended Russell 2000 TR Index ETN
SBND - PowerShares DB 3X Short 25+ Year Treasury Bond Exchange Traded Note ETN
SFSA - iPath Short Extended S&P 500 TR Index ETN
SZO - PowerShares DB Crude Oil Short ETN
UDNT - PowerShares DB 3x Short US Dollar Index Futures ETN
XXV - Barclays ETN+ Inverse S&P 500 VIX Short-Term Futures ETN
XIV - VelocityShares Daily Inverse VIX Short Term ETN
ZIV - VelocityShares Daily Inverse VIX Mid Term ETN
Each of these investments are examples of some of the high-risk inverse ETFs and ETNs which are not suitable for unsophisticated, long-term investors.
The most important of investors' rights is the right to be informed! This Investors' Rights blog post is by the Law Offices of Robert Wayne Pearce, P.A., located in Boca Raton, Florida. For over 30 years, Mr. Pearce has tried, arbitrated, and mediated hundreds of disputes involving complex securities, commodities and investment law issues. Our law firm is devoted to protecting investors' rights throughout the United States and internationally! Please visit our website, www.secatty.com, post a comment, call (800) 732-2889, or email Mr. Pearce at pearce@rwpearce.com for answers to any of your questions about this blog post and/or any related matter.
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