UPDATE 2-RBC unit to cover nearly $3 mln of investor ETF losses

BOSTON, May 2 (Reuters) - Royal Bank of Canada's
brokerage unit agreed to repay investors in Massachusetts up to
$2.9 million to cover losses on leveraged and inverse leveraged
exchange-traded funds, the latest phase of a nationwide
regulatory crackdown on the sometimes volatile products.
The bank's RBC Capital Markets division was also fined
$250,000 by Massachusetts' top securities regulator, William
Galvin, for selling the "highly volatile, nontraditional" funds
that did not fit with some clients' investment objectives,
Galvin said in a statement on Wednesday.
"This settlement details an inexcusable set of facts where
the company was selling products it did not understand, and when
it finally realized the risk and pitfalls of these investments
it did not immediately restrict their marketing," Galvin said.
RBC said it "takes seriously" its obligations to clients.
"We fully cooperated throughout this matter and have in place
extensive policies, procedures and training requirements that
are in compliance with regulatory requirements and with industry
best practices in this arena," the bank said in an emailed
statement.
Leveraged and inverse ETFs are designed to amplify
short-term market returns on a day-to-day basis using
derivatives. Because of the volatile nature, they are considered
more suitable for professional traders than for long-term retail
investors or those with anything but a high-risk investment
profile.
Such ETFs make up under $30 billion of the $1.2 trillion
U.S. ETF market, according to Lipper, the fund tracking unit of
Thomson Reuters.
In 2009, the Financial Industry Regulatory Authority and
other regulators began issuing warnings about such investments
over fears that brokers were selling them to customers with more
conservative investment profiles.
On Tuesday, Citigroup Inc Morgan Stanley, UBS
AG and Wells Fargo & Co agreed to pay more
than $9.1 million in fines and restitution for selling leveraged
and inverse exchange-traded funds "without reasonable
supervision," according to a FINRA statement.
The RBC settlement resolved an administrative complaint
Galvin filed against RBC Capital last year.