In the Tuesday issue of the Wall Street Journal, John Spence notes that
the previously announced SEC's derivatives investigation
could reduce leveraged ETFs' appeal among investors and traders.
Many leveraged and actively-managed exchange-traded funds heavily use swaps and other derivative tools, which worries the commission. ProShares
and Rydex SGI
are all big players in the indexing space.
"It's appropriate to engage in a more thorough review of the use of derivatives by ETFs and mutual funds given the questions surrounding the risks associated with the derivative instruments underlying many funds," stated SEC chairman Mary Schapiro
There were 151 U.S. leveraged and inverse ETFs with total assets of $29.9 billion, as of April 1, taking up a 4 percent market share, according to Morgan Stanley.
Direxion marketing director Andy O'Rourke
commented to The Journal that his firm doesn't mind the SEC's moves and hopes the commission acts swiftly, saying "of course regulators should make sure they perform due diligence so they're comfortable with the investment products in the marketplace."
The SEC revealed its plan for a review of derivatives-based funds on March 26.
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