Tr?id=566623520170033&ev=PageView&noscript=1

ÍøÆØ³Ô¹Ï

SEC Issues Investor Warning Related to Single-Stock ETFs

Posted on July 26th, 2022 at 3:32 PM
SEC Issues Investor Warning Related to Single-Stock ETFs

From the Desk of Jim Eccleston at ÍøÆØ³Ô¹Ï:

While the Securities and Exchange Commission (SEC) has regularly updated its regulatory framework to address the introduction of complex exchange-traded products (ETPs), the SEC now is warning investors about single-stock exchange-traded funds (ETFs), which are set to soon hit the market. 

Single-stock ETFs offer leveraged, inverse or other complex exposure to one single security rather than a portfolio of diversified securities. The SEC is concerned about the risks single-stock ETFs pose to retail investors and the market as a whole. In 2019, the SEC adopted Rule 6c-11 under the Investment Company Act of 1940, which promulgated a framework enabling ETFs to meet certain conditions to come directly to market without initially obtaining SEC permission. While Rule 6c-11 fails to mention single-stock ETFs, issuers are planning to utilize the rule to bring the products to market. 

Similar to most leveraged and inverse products, the single-stock ETFs will rebalance on a daily basis, which may cause ETF returns to substantially diverge from the performance of one underlying stock. In essence, investors may generate lower-than-expected returns in comparison to the performance of the underlying stock if the products are held over a longer period of time. According to the SEC, it would be difficult for an investment advisor to recommend this type of product to a retail investor without violating his or her fiduciary obligations under Regulation Best Interest (Reg BI). While single-stock ETFs may be a useful tool to certain investors, the products pose a substantial risk to numerous retail investors and the market as a whole. 

ÍøÆØ³Ô¹Ï LLC represents investors and financial advisors nationwide in securities, employment, regulatory and disciplinary matters.

Tags: eccleston, eccleston law, SEC, ETFs

Return to Archive

TESTIMONIALS

Previous
Next
Quotes Bigger

I want to extend a tremendous thank you for your dedication, professionalism, hard work and patient demeanor through this challenging time. It was enjoyable interacting with everyone on your team, this certainly helped while dealing with the situation and working towards resolution.

Dan M.

LATEST NEWS AND ARTICLES

1784046159 Law
July 14, 2026
Mariner ÍøÆØ³Ô¹Ïalth Advisors Reports Data Breach Affecting Nearly 9,000 Customers

Mariner ÍøÆØ³Ô¹Ïalth Advisors LLC disclosed a data breach that exposed personal information of 8,995 customers, according to AdvisorHub.

1783957061 Law
July 13, 2026
FINRA Warns of Growing Risks From Finfluencers and AI-Driven Investment Content

Financial Industry Regulatory Authority (FINRA) regulators are raising concerns about the increasing influence of social media personalities and artificial intelligence (AI) on retail investors, particularly those managing their own investments without professional guidance.

1783615970 Law
July 9, 2026
FINRA Suspends Former Branch Manager for Supervisory Failures Linked to Excessive Trading and Churning

A former regional branch manager at a broker-dealer has agreed to Financial Industry Regulatory Authority (FINRA) sanctions after the regulator found that he failed to supervise registered representatives who engaged in excessive trading and churning of customer accounts.