Stockbroker Law - Wednesday, September 18, 2013
Inverse Leveraged Exchange-Traded Funds (ETFs) Give Rise to Customer Losses

The Financial Industry Regulatory Authority issued several warnings to its members, including Regulatory Notice 09-31, Regulatory Notice 09-65, and Regulatory Notice 09-53, specifically advising that these funds are not suited for small investors, and that even in the event they are in fact purchased in retail customer accounts, they should not be held overnight.

Inverse leveraged Exchange Traded Funds (ETF’s) such as Direxion ETF Financial Bear 3X Shares (FAZ) are designed to produce returns measured by a multiple of the underlying index or funds which they are designed to mirror.  This means that if you have purchased an ETF to produce returns as measured by three times (3x) decrease in the value of the underlying index or funds, the value of your funds could increase by an approximate amount equal to three times (3x) the drop in valuation of the underlying fund or index. 

Investors in inverse leveraged funds, such as ProShares UltraShort QQQ (QID); ProShares Ultra Financials (UYG); Barclay’s iPath S&P 500 VIX Short Term Futures Shares (VXX); Direxion Daily Small Cap Bear 3x Shares; and Direxion Shares ETF Trust Large Cap Bear 3X Shares have seen considerable portions of their retirement portfolios almost wiped out with the market swings associated with the timeframe of 2009 through 2013, given the overall rise in the financial markets.

 Oftentimes, excessive exposure was caused in the first instance by brokers unfamiliar with the effect market volatility can have upon these funds.

If you feel you have sustained unnecessary losses due to the improper sale of volatile Exchange-traded funds, we offer a free initial consultation to you.

The Law Offices of Timothy J. O’Connor practices securities law in the Tri-City Capital District of Albany, Schenectady and Troy.  We also represent victimized investors throughout the rest of New York State, including Buffalo, Binghamton, Rochester, Syracuse, Watertown, Utica, Poughkeepsie, Kingston, New York City/Manhattan, Long Island, and everywhere in between, as well as in the surrounding states of Massachusetts, Vermont, New Hampshire, Connecticut, and New Jersey.


Blog Posts

Blog Post


Investment & Broker

Investment Misconduct



Private Company

Private Company Disputes


Personal Injury