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TAG | leveraged exchange traded funds

Jan/13

23

FINRA to Focus on BDCs and Leveraged ETFs in 2013

Comments off · Posted by Securities Lawyer in FINRA

The Financial Industry Regulatory Authority Inc. (FINRA) released its 2013 regulatory and examination priorities letter. The annual letter alerts the broker-dealer community to what Finra examiners will be looking for in the coming year. FINRA will continue to watch yield-oriented products this year but FINRA also will be focusing on business development companies (BDCs), exchange-traded funds (ETFs) and products that use leverage and the use of automated investment advice writes Dan Jamieson in an article for InvestmentNews.com.

FINRA is “particularly concerned about sales practice abuses, yield-chasing behaviors and the potential impact of any market correction, external stress event or market dislocation on market prices,” FINRA said in the letter.

With reference to BDCs, FINRA warned that they have “significant market, credit and liquidity risks” and risk over-leveraging illiquid portfolios with low-cost financing. Leveraged loans are relatively illiquid and hard to value, while CMBS and high-yield often carry higher risks than normal, given their historically low yields, Finra said. High distribution rates on closed-end funds attract investors who may not understand that some of these funds are returning capital, the letter warned.

FINRA’s notice also expressed concern about a “proliferation” of ETFs and ETNs that use leverage or track volatility measures, emerging markets and currencies.

For the first time this year, FINRA examiners will be looking at the use of automated investment advice.

Just because FINRA doesn’t include something in a current letter doesn’t mean examiners won’t be looking into it.

Securities Lawyer, Lars K. Soreide, of Soreide Law Group, who represents clients nationwide before FINRA. For a free consultation with an attorney on how to potentially recover your losses, call 888-760-6552, or visit our website at: http://www.securitieslawyer.com.

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May/12

7

ETFs Need Closer Attention, Says Senator Reed

Comments off · Posted by Securities Lawyer in FINRA

This past Tuesday, May 1st., FINRA, the Financial Industry Regulatory Authority, Inc. fined four major brokerages $9.1 million for selling complex ETFs (Exchange Traded Funds) to investors whose portfolios were otherwise conservative. 

Without admitting or denying the charges, the brokerges will be paying $7.3 million in fines, and $1.8 million in restitution to the clients who bought inverse and leveraged ETFs.  Those brokerages are:  Citigroup Global Markets Inc, Morgan Stanley & Co., LLC, Wells Fargo Advisors, LLC, and UBS Financial Services.

The chairman of the Senate Banking Subcommitte on Securities, Insurance, and Investment, Sen. Jack Reed, D-RI, announced that he will follow up on the hearing he held last October on ETFs with another hearing in the next few weeks.

“My hearing last fall shined a light on these products, which may be affecting market structure, volatility and price discovery and has the potential to harm investors,” Sen. Reed said. “I think this market deserves more attention from both domestic and foreign regulators, and I plan to hold another hearing on ETFs and related issues in the near future.”

Finra felt he brokerages it disciplined had failed to educate their reps about the complexities – and dangers – of leveraged and inverse ETFs, which hold derivatives and magnify market movements. The brokers then sold them to uninformed investors.

“The added complexity of leveraged and inverse exchange-traded products makes it essential that brokerage firms have an adequate understanding of the products and sufficientily train their sales force before the products are offered to retail customers,” Brad Bennett, Finra executive vice president and chief of enforcement, said in a statement. “Firms must conduct reasonable due diligence and ensure that their representatives have an understanding of these products.”

Soreide Law Group warned investors through our blog and marketing materials as early as 2009 against buying and holding leveraged ETFs, and we have been filing lawsuits related to sales practices surrounding leveraged ETFs against brokerage firms nationwide since then.
 
If you or a loved one invested in a leveraged ETF that was held as a long position at the advice of your broker call (888)760-6552 or visit http://www.securitieslawyer.com.

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May/12

2

DID YOU INVEST IN THESE LEVERAGED ETFs?

Comments off · Posted by Securities Lawyer in FINRA

Soreide Law Group is filing FINRA Arbitrations on behalf of investors who invested in Direxion 3x Funds: FAZ, ERY, BGZ, and TZA. 

Leveraged ETF’s have now imploded and regulators and investors have finally woken up and are beginning to pay attention. Major fines have just been handed down to the industries top brokerage houses for sales practices relating to leveraged ETFs.
 
These funds seek 3 times the performance or benchmark of the fund or index they are tracking. They are highly leveraged and were designed for a day trade (not buy and hold). Many brokers misunderstood the makeup of these leveraged exchange traded funds or ETFs and held them as long positions. Over time due to the derivative nature of these products, many of these named ETFs began to cannibalized themselves and not perform as promised.
 
If your stock broker sold you leveraged ETFs such as FAZ, ERY, BGZ or TZA from Direxion and held them for more than several days which resulted in losses, you may be able to recoup those losses through the FINRA arbitration process.
 
FINRA released a Regulatory Notice 09-31 which specifically outlined brokerage firms sales practice obligations relating to leveraged and inverse exchange-traded funds. In FINRA notice 09-31 states, “Most leveraged and inverse ETFs ‘reset’ daily, meaning that they are designed to achieve their stated objectives on a daily basis. Due to the effect of compounding, their performance over longer periods of time can differ significantly from the performance (or inverse of the performance) of their underlying index or benchmark during the same period of time.” Many brokers failed to heed this warning and were negligent in their recommendations to hold these positions for the long term.
 
Several firms were recently fined $9 million by FINRA for selling risky ETFs as a buy and hold strategy to their unsuspecting investors. These firms include household names such as Wells Fargo, UBS, Citigroup, Morgan Stanley. Soreide Law Group is also investigating similar sales practices by smaller brokerage firms that may have made the same negligent recommendations including J.P. Turner & Co., National Securities Corporation, Rockwell Global Capital, K.C. Ward Financial, Merrill Lynch, Newbridge Securities Corporation, Obsidian Financial, and Legend Securities.
 
Soreide Law Group warned investors through our blog and marketing materials as early as 2009 against buying and holding leveraged ETFs, and we have been filing lawsuits related to sales practices surrounding leveraged ETFs against brokerage firms nationwide since then.
 
If you or a loved one invested in a leveraged ETF that was held as a long position at the advice of your broker call (888)760-6552 or visit http://www.securitieslawyer.com.

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Jan/12

22

Complex Investment Products to See More Scrutiny by Finra

Comments off · Posted by Securities Lawyer in FINRA

In an InvestementNews.com article from January20,2012, Dan Jamieson writes that in a regulatory notice, Finra outlined characteristics of what it calls “complex products,” which could include structured notes, inverse or leveraged exchange-traded funds, hedge funds and securitized products such as asset-backed securities.

Finra stated that brokerage firms should have formal written procedures covering everything from the initial due diligence to post-sale performance. This notice specifically identifies duties that fall to individual brokers in understanding complicated products and explaining them to customers. The notice also said that registered representatives should consider whether less complex and cheaper products might achieve the same objectives.

“Finra is letting it be known that recommendations of complex products will be given even more scrutiny going forward,” said Mary Harris-King, co-founder of Comprehensive Securities Compliance Solutions Inc.

Jamieson writes that in its notice, Finra reviewed what a number of European regulators had done in characterizing various complex products. The notice also said that registered representatives should consider unbundling structured products.

“Registered representatives should compare a structured product with embedded options to the same strategy through multiple financial instruments on the open market, even with any possible advantages of purchasing a single product,” Finra said in the notice.

This was good news to Robert Gordon, chief executive at Twenty-First Securities Corp., which replicates structured notes by buying underlying instruments like zero-coupon Treasuries and options on ETFs.

“It looks like Finra is saying that brokers can’t say this [structured note] is simpler — that’s not a good excuse” to buy it, he said.

The InvestmentNews.com article goes on to say that buying the components of a note that guarantees principal is 2% to 3% cheaper than buying the package, offers tax advantages, and lessens counterparty risk, Mr. Gordon said.

If you or a family member have sustained losses in  your investments due to your stock broker or financial advisor’s recommendation, call 888-760-6552, or visit www.securitieslawyer.com.
 
Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.
 

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