The Commission issued a warning about leveraged ETFs last August after the funds were widely criticized for their complex dynamics which took many investors by surprise. Later the SEC said it would temporarily stop clearing new ETFs that make heavy use of derivatives--which leveraged funds typically do--while it reviews how ETFs and other mutual funds employ those instruments.
Taken together, all these moves may frustrate ETF fund companies, but in some ways they're the cost of success. ETFs now play a big role in markets and in small investors portfolios. A high-profile blow-up, if one is out there waiting to happen, might be disastrous.
Copyright (c) 2010, Dow Jones. For more information about Dow Jones' services for advisors, please click here.