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UBS Bans Leveraged, Inverse ETFs

by Michael Johnston on July 27, 2009

UBS has suspended the sale of leveraged, inverse, and inverse-leveraged ETFs, the latest development in a long, twisted saga that began with complaints from individual investors and has grown to include various regulatory agencies and even the Massachusetts Secretary of State. Last week, Edward Jones announced that it had suspended the sale of leveraged funds over worries about their misuse by investors. Details on the rationale for UBS’ decision are still emerging. The following was reported on tickerforum.org:

IMPORTANT NOTICE: Inverse, Leveraged and Inverse-Leveraged Exchange Traded Funds are no longer available for new or additional purchases at UBS

Effective July 27, 2009, UBS is suspending the offering of Inverse, Leveraged and Inverse-Leveraged Exchange Traded Funds (ETFs). You will no longer be able to make new or additional purchases and will only be able to liquidate current positions through UBS at this time. Any attempt to execute a trade of such ETFs will be rejected.

While this development is certainly newsworthy, it shouldn’t be interpreted as a deathblow to leveraged funds by any means. These funds are (for the most part) not targeted towards individuals who have their assets managed by a financial adviser. They are designed for sophisticated investors, such as hedge funds and day-traders who move rapidly in and out of positions (most financial advisers focus more on long-term asset allocation). Nevertheless, UBS’ decision is extremely interesting – more details on this story to follow as they emerge.

Disclosure: No positions at time of writing.