Regulators eye exotic ETFs in information sweep

finraHerbert Lash, writing for Reuters, wrote an article today detailing a recent information sweep performed by the Financial Industry Regulatory Authority. The sweep was conducted to determine the suitability of these non traditional & “leveraged” ETF’s for the fund’s customers. The topic again arises that retail investors are not intelligent enough to make informed trading decisions and must be protected and coddled.

Further into the article, Herbert changes gears a bit and touches on another hot ETF topic, whether or not leveraged ETF’s contributed ot the market’s steep plunge from late September through March. Michael Sapir, chairman and chief executive of ProFunds was interviewed on the topic. The following is an exerpt, "Sapir called the perceived role of ETFsin the steep sell-off unfounded market "lore." He doesn’t expect possible new SEC rules on short-selling to "materially affect" business. Short-selling is a bet that a security’s price will decline.

“What’s been lost in this conversation is that we are a small, little piece overall,” Sapir said, pointing to other short-selling instruments available to investors.

Sapir said from Sept. 30 to March 9 — the bear market’s low — ProFunds’ net exposure to stocks was long $1.9 billion, rebutting critics who have said the exotic ETFs put downward pressure on the overall stock market.

Sapir also took issue with Finra’s determination that the non-traditional ETFs are unsuitable for retail investors who hold them for long periods.

“The empirical data is significantly inconsistent with that notion,” he said.

An internal ProFundsstudy of rolling periods over the past 50 years concluded that the impact of compounding during a 91-day span or less was virtually zero, and over half-year and full-year periods the impact was 0.7 percent or less."

For the whole Reuters story click: HERE


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