http://online.wsj.com/article/SB124000593149930309.html
The Wall Street Journal recently had an article on leveraged ETFs and their effects on the final 30 minutes before the stock market closes every weekday at 4:00pm.  ETF is an acronym for exchange-traded fund.  An ETF is like a mutual fund but has the benefits of being traded like stock, on a stock exchange, at anytime.
Explained a little better: a stock is a share of ownership in a company which you can trade on an exchange.  A mutual fund is a professionally managed investment that pools money from many investors and invests it in stocks, bonds, short-term money markets and other securities.  Mutual funds are meant for a long-term investment, and when you invest in a mutual fund, you are giving your money to the fund’s managers which invest the money as explained by the fund’s prospectus.  So an ETF takes the flexibility of trading a stock, and the asset pooling diversity and professional management of a mutual fund, and puts the two together.  Wikipedia has a more in-depth explanation here: http://en.wikipedia.org/wiki/Exchange-traded_fund#ETFs_compared_to_mutual_funds
Going back to the article, a leveraged ETF tries to offer double or even triple the daily return of a market index by using a total-return swap.  The WSJ explains, “Imagine a fund with $100 million in net assets and 200% leverage, meaning that it seeks to deliver twice the market’s daily return. That requires the fund to maintain $200 million in swap exposure.  In a long swap, a counterparty like a bank or brokerage firm agrees to pay the fund $2 for every $1 rise in the closing value of a market index that day. On the other hand, if the market falls, the fund must pay the counterparty 2-for-1.”
Towards the end of the trading day, as 4:00PM approaches, these ETFs have to rebalance their positions in order to keep their leverage ratio constant.  This means that all these ETFs will buy in the last few minutes of an up day for their index or sell at the end of a down day.  This could lead to the increased volume of trades in the final minutes of a big up or down day for an index.
As the funds become more popular, the large amount of trading volume that occurs at the end of the day will most likely increase.  This could cause significant swings in the stock market in the closing minutes of the day.
It raises some questions as whether these leveraged-ETFs are “good” or “bad” for Finance.  These funds are probably more attractive to investors with a short-term outlook, looking for a fast return.  I do not know of what to think of these large swings towards the end of a trading day, but it creates uncertainty of whether your investments’ moves from 9:30AM-3:30PM will hold up in the final minutes of trading.  I know some of the stocks I own have had significant moves at the end of the day, and I wonder if this has anything to do with these leveraged ETFs.  It will be interesting to see if the SEC does anything to regulate these funds. I found this article interesting, and just wanted to share it with everyone.  Feel free to share your opinions or provide further insight on this.