Regulatory Notice 17-32

FINRA Reminds Firms of Sales Practice Obligations for Volatility-Linked Exchange-Traded Products

Summary

Volatility-linked exchange-traded products (ETPs) are designed to track Chicago Board Options Exchange Volatility Index (VIX) futures, rather than the VIX itself. For the reasons explained further below, many volatility-linked ETPs are highly likely to lose value over time. Accordingly, volatility-linked ETPs may be unsuitable for certain retail investors, particularly those who plan to use them as traditional buy-and-hold investments.

This Notice reminds firms of their sales practice obligations in connection with volatility-linked ETPs as discussed more generally in Regulatory Notice 12-03, including, without limitation, that recommendations to customers must be based on a full understanding of the terms, features and risks of the product recommended, sales materials must be fair and accurate, and firms must have reasonable supervisory procedures in place to ensure that these obligations are met.

Questions concerning this Notice should be directed to:

  • Thomas M. Selman, Executive Vice President, Regulatory Policy, at (202) 728-6977;
  • James S. Wrona, Vice President and Associate General Counsel, Office of General Counsel (OGC), at (202) 728-8270; or
  • Kathryn Moore, Associate General Counsel, OGC, at (202) 728-8200.