Market Overview

Dodd-Frank Rollback Lures Traders To This ETF

Dodd-Frank Rollback Lures Traders To This ETF

The Senate, with the help of 17 Democrats, voted 67 to 31 on March 14th to rollback some regulations on the Dodd-Frank legislation passed in the wake of the global financial crisis. Predictably, those headlines are prompting investors to take another look at financial services stocks and exchange traded funds (ETFs).

The idea of rolling back parts of Dodd-Frank is also luring risk-tolerant traders to leveraged financial services ETFs, namely the Direxion Daily Financial Bull 3X Shares (NYSE: FAS). FAS, which oddly enough, rose to prominence during the global financial crisis and attempts to deliver triple the daily returns of the Russell 1000 Financial Services Index.

The legislation passed by the Senate “would raise the level at which banks are considered 'systemically important' and exempts smaller banks from other rules aiming to curb risky behavior,” reports CNBC.

The Senate bill would ease regulations for smaller and regional banks while keeping in place existing regulations on large, money center banks.


It can take awhile to get things done on Capitol Hill, which should remind traders that FAS and bearish counterpart, the Direxion Daily Financial Bear 3X Shares (NYSE: FAZ) should not be held for weeks or months on end in anticipation of particular Dodd-Frank result.

Reminding traders that neither FAS nor FAZ should turn into long-term Dodd-Frank-related investments is news that the House will not consider the Senate bill until the upper body adds some provisions from the House Financial Services Committee.

The Russell 1000 Financial Services Index allocates 30.5 percent of its weight to bank stocks 14.4 percent to capital markets firms, according to Direxion data.

Bullish On Repeal

If FAS and FAZ are accurate guides regarding traders' anticipatory views of Dodd-Frank rollbacks, traders are bullish on the idea of reduced banking regulations.

Over the past month, FAS is averaging daily inflows of $2.26 million, according to issuer data. Still, some caution should be exercised in analyzing that data point because, over the same period, the bearish FAZ is averaging daily inflows of about $404,400.

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