What You Need to Know
- Gensler asked SEC staff to also recommend potential rulemaking proposals to address risks.
- In November 2020, the agency charged five firms with making unsuitable sales of complex ETPs to retail investors.
- Investors should consider these risks carefully before investing in these products.
Securities and Exchange Commission Chairman Gary Gensler said Monday that he has directed agency staff to examine the potential risks of complex financial products that are listed and traded on exchanges.
“I also asked them to present recommendations for the Commission’s consideration on potential rulemaking proposals to address those risks, as part of a broader look at exchange-traded products,” Gensler said in a statement.
Some ETPs use strategies and structures that are more complex than typical stocks and bonds, Gensler warned. For instance, “leveraged ETFs” and “inverse ETFs.”
“For more than a decade, SEC staff and a number of Commissioners have been warning the public that these products, often called ‘complex ETPs,’ can pose risks to individual investors,” Gensler said.
Gensler noted the the SEC’s Office of Investor Education and Advocacy alert issued in 2009 of the risks that one type of exchange-traded fund can pose to investors who buy and hold them for longer than one day.
“In 2015, the Commission sought public comment on a broad range of issues relating to ETPs, including listing standards and broker-dealer sales practices,” he said.
In November 2020, Cetera Financial Group broker-dealer Summit Financial Networks and Advisor Group BDs Royal Alliance Associates and Securities America Advisors were among five firms the SEC charged with making unsuitable sales of complex exchange-traded products to retail investors.
All five firms settled the claims for a combined total of $3 million that will be returned to harmed investors, according to separate SEC orders.