The U.S. Securities and Exchange Commission (SEC) presented a new investor protection rule last November. The agency´s motivation is consumer protection, as this new rule would make it harder for investment advisers and brokers to sell risky, leveraged and inverse exchange-traded products (ETFs) to investors.
The goal is to protect investors from unsavory sales practices and risky securities by expanding sales practice and due diligence standards. This regulation included all leveraged and inverse ETFs, such as exchange-traded funds and exchange-traded notes. It was modeled after a Financial Industry Regulatory Authority Inc. covering options trading. Leveraged and inverse ETFs are complex and risky investment products that many brokers do not fully understand and, as a result, many brokers do not adequately explain all of the risks of these investment products.
Registered Investment Advisors (RIAs) must adhere to a fiduciary standard, and brokers to a suitability standard, when recommending these types of investment products. They all must obtain all the necessary information from customers (e.g., investment objectives, employment status, estimated annual income, estimated liquid net worth.) before recommending inverse and leveraged ETFs.
Public Has Limited Time to Comment on Proposal
Jay Clayton, chairman of the SEC, explained that the Commission’s proposal recognizes the latest changes in the securities industry, as well as the importance of portfolio management.
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If you are looking for a securities fraud attorney to review your rights and options, the securities fraud lawyers at Dimond Kaplan & Rothstein, P.A. represent individual and institutional investors who have lost money as a result of securities fraud or stockbroker misconduct.
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