The Securities and Exchange Commission (SEC) is seeking to determine if the trade of ETFs adds to the market’s volatility, The Wall Street Journal reports. According to Morningstar Inc., ETFs produce 35 percent to 40 percent of exchange trading volume. Typically tracking market indexes, ETFs trade on exchanges like stocks.
SEC officials may be looking at leveraged ETFs, which amplify investor bets through derivatives and provide double or even triple the return of an index. The inverse ETFs gain if the index drops and fall if the index gains. The SEC will set up a public dialogue about the use of derivatives by mutual funds and ETFs.
Click here for the story from The Wall Street Journal.