What You Can Do While the SEC Probes Exotic ETFs

By Tom Lydon,

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The Securities and Exchange Commission ( SEC ) may be largely focused on pursuing its charges against Goldman Sachs (NYSE: GS ), but that doesn't mean the regulator has forgotten about the exchange traded fund  ( ETF ) industry.

Along with the growth the ETF industry has seen in recent years has come innovation in the form of new creative and exotic products. As a result, funds that make use of derivatives, such as leveraged and actively managed ETFs, have caught the attention of regulators.

Don Dion for The Street explains that the SEC is looking to understand how derivatives in these products are used, and while it does so, has put a freeze on any new ETFs launching that would use the derivatives. [ Are ETFs Getting Too Complex? ]

The SEC's investigation of exotic products underscores some important points about ETFs and the current landscape. It's definitely true that ETFs may be a lot riskier than they were, say, 15 years ago. This is why it's becoming increasingly important for two things to happen:

  • Providers and other ETF industry players to do their part to educate investors on the uses and risks of new products. [ What Investors Love About ETFs. ]
  • ETF investors need to do their due diligence and fully research any product they're thinking of buying, especially if it's residing in esoteric territory.

For more stories about ETFs, visit our ETF 101 category .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

This article appears in: Investing ETFs
Referenced Stocks: ETF , SEC

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