SEC Chair Gary Gensler directed staff to study the risks of complex exchange-traded products ("ETPs") and recommend potential rulemakings to address such risks.
In a published statement, Mr. Gensler said his directive comes in response to two recently approved Cboe BZX-proposed rule changes to list and trade shares of new ETPs:
- the 2x Long VIX Futures Exchange-Traded Fund ("ETF"), which has an investment objective to "return 200 percent of its benchmark index [the Long VIX Futures Index] for a single day"; and
- the -1x Short VIX Futures ETF, which has an investment objective to "provide daily investment results . . . that correspond to the performance of the Short VIX Futures Index."
In a joint statement, SEC Commissioners Allison Herren Lee and Caroline A. Crenshaw, both of whom supported the rule changes permitting the new ETPs, emphasized the need to update the SEC's regulatory framework for novel and complex ETPs, specifically through:
- consistent oversight of ETPs that share similar risks, regardless of the products' structure (e.g., whether the products are issued by investment companies registered under the Investment Company Act or are structured notes registered under the Securities Act);
- consistent and comprehensive review of ETP listings, which would consider the potential market-wide risks of the products; and
- a "tailored sales practices framework" for complex ETP recommendations and trading, in order to provide more robust investor protections.
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