| 29 July 2009

Online broker Charles Schwab (SCHW) issued a statement on its Web site today declaring that leveraged and inverse ETFs are "not right for everyone." The news is the latest in a saga that could signal a dramatic reversal in what has become one of the most actively traded types of securities in the markets. Today alone more than 31 million shares of the Direxion 3X Bear (FAZ) and more than 24 million shares of the Direxion 3X Bull (FAS) traded hands.

Schwab's statement carefully walks through several examples of both leveraged and inverse ETFs to demonstrate the possible risks. The thorough warning made it clear that investors should "proceed with extreme caution" when contemplating an investment in a leveraged ETF and they create a distinction between what they call a "naive expectation" of returns versus the "actual" return.

Despite this stern warning, Schwab continues to offer the products to its customers. We earlier reported that Edward Jones pulled the products from its offerings and then several days later we reported that UBS Wealth Management (UBS), LPL Investment Holdings and Ameriprise Financial (AMP) also decided to stop selling leveraged and inverse ETF products.

According to reports in the Wall Street Journal today, Morgan Stanley Smith Barney, which is a joint venture between Morgan Stanley (MS) and Citigroup (C), says the issue is currently "under review."

Click here to see the latest FINRA statements on the matter.