Author: Michael Hill

In our earlier press release, we stated that the Financial Industry Regulatory Authority (FINRA) reminded all brokers and broker-dealers, in a regulatory notice, of their requirements prior to recommending the purchase of a leveraged or inverse exchange-traded fund (ETF).  See FINRA Regulatory Notice 09-31 .  These requirements are more than what is required prior to recommending the purchase of an ordinary stock.  Among these standards include the broker-dealer determining if leveraged and inverse ETFs are suitable for any client then determining if they’re suitable for the client in question prior to recommendation.  The suitability determination includes considering the client’s financial background, investment objectives and risk tolerance.  Brokers are also required to complete specific training on leveraged and inverse ETFs.  Lastly, the broker-dealer has to document all of their supervisory obligations concerning these requirements.  According to FINRA, holding a leveraged or inverse ETF more than one day for a retail investor may be considered unsuitable.  The broker and broker-dealer may be liable for losses if an investor was unsuitable for the leveraged or inverse ETF or failed to perform their regulatory requirements concerning the recommendation to purchase.