A Sensible ETF Margin Policy

At least one major clearing firm this morning has sent notice it will no longer allow buying of Direxion's 3x leveraged ETFs to be purchased on margin (they didn't name Direxion explicitly, but theirs are the only ones on the market currently and were, not coincidentally, the ones specifically mentioned as being restricted in this way: BGU, TNA, ERX, FAS, DZK, EDC, TYH, MWJ, BGZ, TZA, ERY, FAZ, DPK, EDZ, TYP, MWN).

My question is: who the heck would be buying these things on margin? Certainly not individual investors, I'd hope.

Anyway, this just seems like common sense, and I doubt Direxion would have a problem with it. The very point of leveraged ETFs is to be able to gain margin-like exposure without taking margin-like risk (the possibility of getting into a negative equity situation if the market goes against your trade).

Separately: I wonder what affect these leveraged mutual funds are having on the usefulness of NYSE margin data. I mean, bulls today could point to the fact that outstanding margin debt has literally halved from highs registered in June, 2007. Yet, some of that decline has to be due to replacement, meaning the need to utilize margin has been decreased with the creation of leveraged, inverse ETFs. Hmmm... I'll come back to this topic later...

 

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