The Financial Industry should be ashamed of themselves with respect to these Exchange Traded Products connected to the VIX and the duping of ordinary Americans that comes forth from these products. Many ordinary Joe and Jane public investors don't understand what they are getting into with these investments and in many cases have lost a significant amount of their savings where if there was a proper and full education about these products many of these investors would have prudently avoided them. The Exchange Traded Note products provide a good example of the confusion and lack of understanding that prevails. Take for instance these Daily 1X Inverse Short Term VIX Future Notes, the industry makes a weak attempt to warn the public telling investors these products should only be used by investors that buy and sell the product the same day they are meant to provide hedging for professional investors for their trading during the day; but the industry doesn't explain clearly to the ordinary investor why- how this investment actually works further they advertise the purpose of these products which have a lot of surface appeal and pull investors in! Obviously, the way this ETN works is that when the VIX Short Term Futures Index is down for the day the ETN value increases correspondingly. The glitch, the problem or the real concern is when the benchmark futures index goes up for the day because not only is there the obvious decrease in the value of the ETN but the value of the ETN is permanently harmed! For instance, suppose the VIX Short Term Futures index ends the day up one percent pursuant to the terms of the note the value of the ETN drops one percent. Now suppose the next day the VIX Short Term Futures Index ends the day down one percent when that days ETN value is calculated the yesterday's calculated or indicative value, the ninety-nine percent value, is used as the base price which is increased by one percent. So over the long term, drops in the daily value of the ETN have a severe cumulative effect to the value of the product. Conceptually the concept is like the concept of compound interest in reverse; for the compound interest concept the interest gained is added onto the base so corresponding interest rates applied to the new base in the future produce ever higher increases and total amount for ETNs the base is reduced in value by a loss so when the future increase or decrease is computed the percentage is taken off a lower base. The essence of the point is that daily decreases in value of the ETN have a permanent residual negative effect that magnifies over time! The wrongfulness of the industry is that it does not educate consumers clearly on how this value determination is made. Along the same vein in educating consumers, federal regulation should require the issuers of these ETP to publish charts (1d, 1wk, 1yr, 5yr chart) of the indicative value, the computed value, of these products so consumers can be educated to how the value of these products change with respect to the VIX futures. The issuers publicly advertise the prior days indicative value of the product but that doesn't help unsophisticated investors that do not really grasp how the value of these products is determined. Similarly, federal regulators need to kick the butt and do whatever else is necessary to the Chicago Board Options Exchange so that they publish to the public charts of the pricing of their VIX futures, from a fairness standpoint if you operate an exchange that sells futures to the public you publish to the public charts on the pricing they have a duty to be transparent on pricing which necessitates publishing charts. It is not sufficient federal regulators that the CBOE point to the existence of a third party website that sometimes publishes such a chart especially when that website is corrupt and whose managers should not ever work in the industry. What really needs to happen here is the Consumer Financial Protection Bureau needs to get involved in regulating these products so that the American consumer is treated fully fair. Although the CFPB's authority structure should be changed to a board form instead of a single person structure like similar regulatory agency the CFPB is an extremely valuable asset of America because it really has as its sole mission protecting the American consumer some other agencies have a responsibility to look out for the American consumer but it is clouded by its obligation to help the industry succeed! The Financial Industry and their allies need to take it to heart and put it into action that they understand America exists for all Americans not to benefit just some like those that work in and have ownership stakes in the Financial Industry!
