Articles Tagged with Silver Oak Securities

The Financial Industry Regulatory Authority (FINRA) sanctioned brokerage firm Silver Oak Securities, Inc. (Silver Oak) concerning allegations from January 2009, to December 2010, Silver Oak failed to establish and maintain a supervisory system reasonably designed to achieve compliance with applicable securities laws regarding the sale of leveraged and inverse Exchange-Traded Funds (Non-Traditional ETFs).  Silver Oak has been a FINRA member since 2007 and is in Jackson, Tennessee, and employs 122 registered individuals at 28 branch offices.

Non-Traditional ETFs have grown significantly in popularity since 2006.  By 2009, over 100 Non-Traditional ETFs had been issued with total assets under management of approximately $22 billion.  A leveraged ETF seeks to deliver two or three times an index or benchmark return the ETF tracks.  Non-Traditional ETFs can also be “inverse” or “short” returning the opposite of the performance the index or benchmark.  Non-Traditional ETFs contain significant risks that are not found in traditional ETFs.   Non-Traditional ETFs have risks associated with a daily reset, use of leverage, and compounding.

In addition, the performance of Non-Traditional ETFs over long periods of time tend to differ significantly from the performance of the underlying index or benchmark the fund tracks.  For example, between December 2008, and April 2009, the Dow Jones U.S. Oil & Gas Index gained two percent while a leveraged ETF that tracked the index’s daily return fell six percent.  Another related leveraged ETF seeking to deliver twice the inverse of the index’s daily return fell by 26 percent.  These risks, among others, prompted FINRA to issue a Notice to Members clarifying brokerage firm obligations when selling Non-Traditional ETFs to customers.