Personal Injury Law

FINRA Warnings: Shouldn?t There Be a Rule?

By Rod Heggy

The September 24 ,2009 warning by FINRA about leveraged and inverse ETFs was a bit annoying. If FINRA has to warn about it, should not there be new suitability rulemaking to go with it aimed at these products?

Even the explanation by FINRA of what these products are lacks clarity for the people FINRA is trying to warn. Of even more concern, however, is that these products, FINRA believes, are especially apt to act erratically in volatile markets.

FINRA?s explanation of these products contains nicknames like ?short funds? and ?ultra short funds,? as if the investor reading the alert that did not understand the more formal name might get something out of the less formal. Of course, FINRA has to start somewhere, and the name is the most logical place to start. But, what else is the investor likely to get beyond the names? Will the investor really understand the nature of these products and their real risks?

These products should probably be classified by FINRA for suitability purposes as ?speculative,? if FINRA?s warning is to have any real meaning. That would go a long way toward diverting them from the unsophisticated. FINRA could also declare them unsuitable for retirement accounts. FINRA could also preclude margin account purchases of these products, or limit margin account purchases to margin accounts with an actual marked to market value exceeding one million dollars.

Unless FINRA begins these types of protective rule implementations, FINRA will always be regulating after the losses instead of preventing them.

Full post as published by Terra Extraneus on September 26, 2009 (boomark / email).