The US Financial Industry Regulatory Authority is imposing increased customer margin requirements for leveraged ETFs and uncovered options overlying these funds.
The new requirements, which will be effective from December 1 this year, will increase the maintenance margin requirements by a factor proportionate to the leverage of the fund, without exceeded 100% of its value.
The self-regulatory body says that the current margin requirement for any long ETF is 25% of the market value, while this figure is generally 30% of the market value of a short ETF.
As a result of the change, a double-leveraged long ETF will require a maintenance margin of double the 25% requirement for a long ETF, for example. Similarly, a 3X leveraged short ETF will require a maintenance margin of 30% multiplied by three.
Finra says that it is also increasing the maintenance margin requirements for listed and over-the-counter uncovered options on leveraged ETFs in a similar fashion.
In a notice, it warns: "Finra recently reminded firms of their sales practice obligations with respect to leveraged and inverse ETFs, including the risks caused by the fact that most of these funds are designed to achieve their stated performance on a daily basis."
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