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FINRA Regulatory Notice: Commodity Futures-Linked Securities

Sales Practice Obligations for Commodity Futures-Linked Securities

The Financial Industry Regulatory Authority (FINRA) published Regulatory Notice 10-51 reminding firms to make fair and balanced statements in its communication with the public on commodity futures-linked securities. They are reminded that the returns on such securities can often deviate from the returns on the underlying commodities to which they track.

In an effort to further educate public investors, SLCG has written a draft paper on futures-based commodities ETFs examining, amongst other things, the sources of the deviation between futures-based commodities ETF returns and the underlying commodities returns. It is often claimed that ETFs are good for diversification and hedging, and investors are probably told the same thing by brokerages. But if the returns deviate from the underlying returns, then this claim is not necessarily true.

Investors should investigate for themselves. You can find the draft paper and many others at our dedicated website.