SEC Chair Gary Gensler Provides Statement on Complex Exchange-Traded Products
On October 4, 2021, SEC Chair Gary Gensler issued a statement announcing that he had directed the SEC staff to review the risks of complex financial products and consider potential rulemaking proposals to address those risks. Specifically, Mr. Gensler focused on leveraged ETFs, which are designed to track a multiple of an underlying index, and inverse ETFs, which are designed to track the opposite of an underlying index, and the particular risks that these products may pose to individual investors.
Mr. Gensler noted that complex ETFs have long been a concern of the SEC, citing recent enforcement actions against financial professionals for recommending that retail investors buy and hold exchange-traded products designed for short-term trading and former SEC Chair Jay Clayton’s stated concerns about the investor protection issues these products can pose. He cautioned that although the listing and trading of complex ETFs may be consistent with the Securities Exchange Act of 1934, as evidenced by the SEC’s October 1, 2021 approval of two ETFs that will provide leveraged and inverse exposure to volatility futures, this does not mean that the products are appropriate for every investor. Mr. Gensler concluded by asserting his belief that rulemaking may provide strengthened investor protection.
Mr. Gensler’s remarks are available here.
Vedder Thinking | Articles SEC Chair Gary Gensler Provides Statement on Complex Exchange-Traded Products
Newsletter/Bulletin
November 19, 2021
On October 4, 2021, SEC Chair Gary Gensler issued a statement announcing that he had directed the SEC staff to review the risks of complex financial products and consider potential rulemaking proposals to address those risks. Specifically, Mr. Gensler focused on leveraged ETFs, which are designed to track a multiple of an underlying index, and inverse ETFs, which are designed to track the opposite of an underlying index, and the particular risks that these products may pose to individual investors.
Mr. Gensler noted that complex ETFs have long been a concern of the SEC, citing recent enforcement actions against financial professionals for recommending that retail investors buy and hold exchange-traded products designed for short-term trading and former SEC Chair Jay Clayton’s stated concerns about the investor protection issues these products can pose. He cautioned that although the listing and trading of complex ETFs may be consistent with the Securities Exchange Act of 1934, as evidenced by the SEC’s October 1, 2021 approval of two ETFs that will provide leveraged and inverse exposure to volatility futures, this does not mean that the products are appropriate for every investor. Mr. Gensler concluded by asserting his belief that rulemaking may provide strengthened investor protection.
Mr. Gensler’s remarks are available here.
