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Rating:LPL Shuts Out Direxion's ETFs Not Rated 0.0 Email Routing List Email & Route  Print Print
Friday, July 24, 2009

LPL Shuts Out Direxion's ETFs

News summary by MFWire's editors

The backlash against leveraged ETFs (though not their leveraged vanilla mutual fund brethren) continues as LPL Financial restricts a subset of the products. Yet it looks like LPL's policy will substantially impact only one of the three leveraged ETF specialists: Direxion. Meanwhile, Ameriprise is basically cutting off leveraged and inverse ETFs entirely.

"In response to FINRA’s recent guidance regarding leveraged and inverse ETFs, we have instructed our advisors to stop soliciting the purchase of these products," Ameriprise spokeswoman Stacy Housman told MFWire in an emailed statement.

"Our firm has been reviewing leveraged ETFs since early 2009, in particular, due to the volatility in the markets and the introduction of products with new levels of leverage," LPL spokesman Joseph Kuo told MFWire in an emailed statement. "Based on that review, the company decided to prohibit the sale of leveraged ETFs that seek more than 2x the long or short performance of the target index."

Kuo declined to comment on LPL's policy (if any) related to non-ETF leveraged mutual funds, or on how many LPL advisors currently use leveraged ETFs.

Without naming specific companies, that policy effectively singles out Direxion, for unlike fellow leveraged ETF providers ProShares and Rydex, all of Direxion's ETFs offer more than 2x leverage, a more recent innovation in the marketplace. (ProShares does offer two 3x ETFs, but all of their other ETFs offer leverage of 2x or less.)

Andy O'Rourke, senior vice president and marketing director at Direxion, hopes that his firm can find some middle ground on the issue with LPL.

"We're in regular contact with them," O'Rourke said, stressing that Direxion educates firms and advisors about the products, while also providing advisors with materials for investors. "We'll continue those conversations."

LPL isn't the only broker-dealer attacking leveraged ETFs in the wake of public concerns from Finra and the Masschusetts Secretary of State, William Galvin.

Edward Jones has also decided to restrict sales of leveraged ETFs, apparently of all magnifications (and not just more than 2x). It appears, for now, that the moves by Ameriprise, Edward Jones and LPL do not affect leveraged mutual funds of the non-ETF variety.

An Edward Jones spokesperson declined to comment. 

Correction: A previous version of this story incorrectly described which leveraged ETF providers would be affected by LPL's new policy. All of Direxion's ETFs offer 3x leverage and thus fall above the 2x dividing line. ProShare also offers two ETFs with 3x leverage.

Edited by: Neil Anderson, Managing Editor

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