UBS Should Be Praised for Its ETF Courage

Here's a big laugh. The Financial Industry Regulatory Authority (FINRA) fined Merrill Lynch and UBS (UBS - commentary - Trade Now) $150,000 and $100,000 respectively for advising clients to make unsuitable short-term sales of closed-end funds. I have no doubt these fines were right to levy and that the brokers shouldn't have done what they did.

But I find it totally ironic that these trades are unsuitable, but the use of daytrading instruments like the inverse and double-inverse and the double-long ETFs are beyond the purview of FINRA, even though they can often -- if not almost always -- be unsuitable for retail investors.

In fact, it is a shame that today's UBS news obscures its courageous decision to ban these leveraged funds precisely because they are unsuitable for most of their investors. For UBS to take action that clearly hurts the bottom line -- these are wildly popular instruments -- says a lot more in its favor than any FINRA slap for unsuitability for certain closed-end funds.

I hope people recognize that the stopping of trading of particular instruments that have hurt people is unbelievably courageous, as you know the uninformed customers who use these things are going to jump ship to other brokers. I wish FINRA would have noted when it fined UBS that the firm takes its commitment to the welfare of its customers very seriously, hence the withdrawal from trading these nefarious instruments. (If you want to know the whole story, read Don Dion's unbelievably good coverage.)

UBS is a hero to me, regardless of the FINRA action.

Now let's hope Merrill Lynch does the same.

Maybe then the SEC will rethink its blessing of these products, a blessing that is specious in its reasoning -- as anyone who has read the letters the SEC knows -- because they rely on a theory that the market is too deep to manipulate and don't even touch on the notion that the instruments are indeed unsuitable for the vast majority of clients, who mistakenly believe that these are appropriate long-term hedges for existing positions. (For more on the debate, you should also read the work of Eric Oberg, who has articulated the issue well on our site.)

At the time of publication, Cramer had no positions in the stocks mentioned.

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