Morgan Stanley Toughens ETF Policies

Tuesday, 16 Mar 2010 12:13 PM

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NEW YORK -- Morgan Stanley Smith Barney is placing new restrictions on the sale of certain exchange-traded funds, responding to concerns raised by regulators, the wealth management venture said on Friday.

MSSB, majority-owned by Morgan Stanley, said it will no longer solicit purchases of leveraged and inverse ETFs in traditional brokerage accounts, and customer-initiated purchases of such products will be subject to stricter review and oversight.

Advisory accounts will be barred from purchasing these types of ETFs, which have come under scrutiny from the Financial Industry Regulatory Authority, a brokerage regulator.

In June, FINRA said such ETFs are "typically not suitable" for retail investors who plan to hold them for more than one day. FINRA later said the funds can be appropriate for short-term investors whose strategies are "closely monitored" by financial professionals.

Swiss bank UBS AG (UBSN.VX: Quote, Profile, Research, Stock Buzz) announced last week that it had stopped selling ETFs that use leverage, saying they detract from long-term investing. Other firms that have stopped selling leveraged ETFs include St. Louis-based Edward Jones, according to The Wall Street Journal.

Leveraged ETFs use such things as swaps to magnify the daily returns of a particular index. Inverse ETFs are designed to move in the opposite direction of a particular index.

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