Luis Rangel Comment On Regulatory Notice 22-08
The checks and balances are already in place. The prospectus' already make clear what the risk of leveraged investment or inverse investment tools are. The clearing brokers also ask the right questions before trading in these tools is allowed. The losses suffered by small investors who do not understand the risks they take are a just prize for ignorance. Nothing trains the investor to sharpen their skills like learning from poor and uninformed investment decisions. This ultimately makes the markets stronger and better in the long run.
Having a new layer of government regulation on top of the current bureaucracy is not only a waste of time and resource, but it will surely draw an even greater divide between large institutional investors and the average small investor. Small investors are already placed at a disadvantage by large institutions who remove liquidy from the markets via Block Trades and Dark Pools, and they are further taxed by High Frequency Traders who continual shave margin off the prevailing bid and offer of a security. Small investors also do not enjoy a seat at the table of private equity or IPOs.
Given the fact that the playing field for small investors is very uneven, high leveraged / inverse derivatives give small investors a chance to compete for better returns. In addition, they also allow them to efficiently hedge their risk on things like their retirement accounts or other parts of their core portfolio. As such, limiting or discouraging investors to use these tools could actually have a larger detrimental effect on their total net worth.
For those investors who use high leveraged derivatives based purely on greed, the markets will treat them no differently than those who buy too many investment properties, buy too many lottery tickets or play too many rounds of poker. Whether they learn from their mistakes is entirely their choice. The key message here is that the GOVERNMENT CANNOT REGULATE GREED. More importantly, by allowing some investors to fail at their own hands you are also giving them and others the best opportunity to succeed when they take or hedge away the appropriate risks.
As such, I oppose any new restrictions on my right to trade high leveraged or inverse derivatives.