Man stopping line of dominoes from falling

Amid growing concerns about the risks posed by complex exchange-traded products — such as leveraged and inverse ETFs — the U.S. Securities and Exchange Commission (SEC) is considering policy action.

SEC chair Gary Gensler said on Monday that he has directed the regulator’s staff to study the risks that accompany complex listed products and to propose possible reforms to deal with those risks.

Gensler noted that SEC staff and commissioners have been warning about the risks with these kinds of products for retail investors for more than a decade, and that the commission has reviewed listing standards and broker-dealer sales practices in connection with these concerns.

While the regulator has focused on the risks to retail investors, Gensler warned that these products could represent possible systemic risks too.

The products “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,” he said in a statement.

“I believe that potential rulemaking could strengthen the investor protections around these products,” he added.