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<span class="articleLocation”>Morgan Stanley has agreed to pay $8
million to settle charges related to single inverse
exchange-traded fund investments that the firm had recommended
to clients, U.S. financial regulators said on Tuesday.
In a statement, the Securities and Exchange Commission said
Morgan Stanley admitted to wrongdoing, adding that the company
had from 2010 to 2015 “recommended securities with unique risks
and failed to follow its policies and procedures to ensure they
were suitable for all clients.”
Unlike a normal index fund, inverse ETFs aim to deliver the
opposite of the return of a market benchmark on a given day,
using futures contracts and other financial derivatives. For
instance, an inverse fund could go up by 5 percent on a day the
index it tracks declines by 5 percent.
Over longer periods of time, the funds’ performances often
differ dramatically from the indexes they track.
“Morgan Stanley solicited clients to purchase single inverse
ETFs in retirement and other accounts, the securities were held
long-term, and many of the clients experienced losses,” the SEC
Morgan Stanley spokeswoman Margaret Draper said the firm was “pleased to have resolved the matter,” but declined to comment
Regulators have previously penalized companies, including
Morgan Stanley, for selling the funds without what it said were
properly disclosing the risks or for not considering the
appropriateness of the products for clients.
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