SEC’s Gensler Reiterates Focus On ‘Complex Products’

Speaking at ISDA’s annual meeting, Gensler cited the COVID-19 crash and ‘Volmageddon’ as reasons for scrutiny on such products.

Reviewed by: Heather Bell
Edited by: Heather Bell

Addressing the audience at the International Swaps and Derivatives Association’s annual meeting, SEC Chair Gary Gensler once again brought up the topic of “complex products” and the threat they represent to investors and markets after he addressed such issues as risk reduction, transparency and market integrity as they relate to swaps. 

After some remarks on the “intersection of crypto assets with derivatives,” Gensler segued into the topic of inverse and leveraged ETFs, noting “These investment products, though, also can pose risks even to sophisticated investors, and can potentially create system-wide risks by operating in unanticipated ways when markets experience volatility or stress conditions.” 

The footnotes to his remarks cited the sudden closures of leveraged and inverse exchange-traded products during the COVID-19 market crash and the losses suffered by investors in VIX-based products during the Feb. 5, 2018 “Volmageddon.” 

Immediately in the wake of discussing systemwide risks, Gensler noted that charges had been filed against Archegos and Infinity Q over funds that involve allegations of market manipulation and misleading counterparties in the former case and valuation fraud in the latter. The SEC releases outlining the charges do not mention exchange-traded products, however. 

“Such conduct, including alleged inappropriate valuations, fraud, or manipulative activity, reminds us that we must promote transparency-enhancing initiatives to lower risk and protect investors,” Gensler said.  

He added that he had asked the SEC’s Division of Investment Management and Division of Examinations to examine the use of derivatives by registered investment companies to ensure their compliance. Gensler had previously announced a staff review of exchange-traded products as a whole, specifically “complex” products, in October last year.  

It’s not just the SEC that is focused on this topic. The Financial Industry Regulatory Authority recently closed its public comment period on a proposed rule that could limit investor access to exchange-traded products that are not simple equity or fixed income exposures.  


Contact Heather Bell at [email protected] 

Heather Bell is a former managing editor of She has also held editorial positions at Dow Jones Indexes and Lehman Brothers. Bell is a graduate of Dartmouth college and resides in the Denver area with her two dogs.