the Financial Sector Regulatory Authority reminds member firms of their obligations when it comes to trading complex products and options and solicits feedback on best practices and possible rule changes.
The industry’s self-regulator warns companies that while trading in such products “can potentially expand investment opportunities for retail investors”, it also poses risks for inexperienced investors, according to a regulatory notice published on Tuesday.
Finra defines complex products as those that a retail investor may not fully understand, including leveraged or inverse exchange-traded products, range funds, and non-traded real estate investment trusts.
Trading in complex commodities and options has increased significantly, Finra says, adding that he reminds businesses to comply with the Security and Exchange Commission‘s Regulation Best Interest when recommending such products to retail investors.
The self-regulator is also seeking industry input on effective practices for complex products and options, particularly as they affect retail investors, according to the notice.
Finally, Finra wants to know whether its regulation needs to be adapted in light of the growing number of investors trading complex products and options on self-managed platforms rather than with finance professionals, the self-regulator said.
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