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New guidance from the Investment Industry Regulatory Organization of Canada (IIROC) highlights the added risks of dealing in complex, risky exchange-traded funds (ETFs) in volatile markets.

The industry self-regulatory organization issued new guidance that focuses on dealers’ sales practices when recommending leveraged and inverse ETFs to retail investors.

In its guidance note, IIROC warned that leveraged and inverse ETFs that are reset daily are typically “unsuitable for retail investors who plan to hold them for longer than one trading session, particularly in volatile markets.”

The guidance note stresses dealers’ suitability obligations, disclosure requirements and supervisory expectations.

It also highlights the importance of product-specific training.

Training “should emphasize that, due to the complexity and structure of these funds, they may not perform over time in direct or direct inverse correlation to their underlying index. This is particularly important as many investors may be turning to these funds as part of a long-term strategy to weather current market conditions,” it said.

Investor advocates such as the Canadian Foundation for Advancement of Investor Rights (FAIR Canada) have long warned about the added risks to retail investors of dealing in leveraged and inverse ETFs.