This Day On The Street
Continue to site right-arrow
ADVERTISEMENT
This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
TheStreet Open House

Leveraged ETF Margin Rules to Change

Stocks in this article: FAS FAZ EDZ

NEW YORK ( TheStreet) -- In what could be be a major blow to ultra-long and utra-short ETFs, the Financial Industry Regulatory Authority announced Tuesday that it would be raising margin requirements for leveraged ETFs on Dec. 1.

In Regulatory Notice 09-53, FINRA notes that it will be implementing increased customer margin requirements for leveraged ETFs and uncovered options overlying leveraged ETFs.

Leveraged ETFs like the Direxion Daily Financial Bull 3X (FAS) and Direxion Daily Financial Bear (FAZ) have become increasingly popular with investors over the last year. These funds use derivatives like futures and swaps to achieve ultra-long or ultra-short exposure to their underlying indices.

FINRA notes the "inherent" volatility of leveraged ETFs as the reason for the new requirements. Since many of the leveraged ETF funds are designed to give investors 200% or 300% exposure to their underlying indices, the funds can swing violently depending on the direction of the market.

Citing NASD Rule 2520, FINRA says that "in response to market conditions," it will "prescribe higher initial and maintenance margin requirements." FINRA also is careful to distinguish the "increased volatility of leveraged ETFs compared to those of their non-leveraged counterparts."

Currently, in a strategy-based margin account, the maintenance margin requirement is 25% of the market value for any long ETF, and generally 30% of the market value for any short ETF. The new margin rules will require that margin requirements increase by "a percentage commensurate with the leverage of the ETF, not to exceed 100% of the value of the ETF."

1 of 2

Check Out Our Best Services for Investors

Action Alerts PLUS

Jim Cramer and Stephanie Link reveal their investment tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
Quant Ratings

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
Stocks Under $10

Jim Cramer's protégé, David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
Try it NOW
Try it NOW
Try it NOW

Check Out Our Best Services for Investors

Dividend Stock Advisor

Jim Cramer's protégé, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Updates with exact steps to take - BUY, HOLD, SELL
Trifecta Stocks

Every recommendation goes through 3 layers of intense scrutiny—quantitative, fundamental and technical analysis—to maximize profit potential and minimize risk.

Product Features:
  • Model Portfolio
  • Intra Day Trade alerts
  • Access to Quant Ratings
Options Profits

Our options trading pros provide over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • Actionable options commentary and news
  • Real-time trading community
Try it NOW
Try it NOW
Try it NOW
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!

Markets

DOW 17,191.37 -195.84 -1.13%
S&P 500 2,002.16 -27.39 -1.35%
NASDAQ 4,637.9940 -43.5030 -0.93%

Partners Compare Online Brokers

Free Reports

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs