What do the Great Depression, the Great Recession, and the demise of Lehman Brothers and Bear Sterns all have in common? One word: leverage. The misuse of leverage, in all its forms, contributed greatly to all of these events. Yet even today, common investors can purchase a leveraged exchange-traded fund (leveraged ETF), a complex product that uses leverage to increase returns, without triggering applicable laws designed to regulate the use of leverage. This Comment articulates the basics surrounding the functions and operations of leveraged ETFs and margin rules in order to assess the compatibility of the two. The Comment argues that leveraged ETFs should be limited or prohibited because they contravene the purposes of the long-established margin rules set in place to protect the market and investors.
William M. Humphries, Leveraged ETFs: The Trojan Horse Has Passed the Margin-Rule Gates, 34 SEATTLE U. L. REV. 299 (2010).