Regulators eye exotic ETFs in information sweep

* Finra seeks details on sales, marketing of levered ETFs

* Focus is on one-day investment horizon of 'exotic' ETFs

* Sale to unsophisticated investor on Finra' radar screen

* ProFunds defends ETFs' use, plans education campaign

By Herbert Lash

NEW YORK, July 2 (Reuters) - A battle is brewing over leveraged exchange-traded funds, a derivatives cocktail whose growing popularity some say was at the center of sharp market volatility after the collapse of Lehman Brothers in September.

The Financial Industry Regulatory Authority recently conducted an information sweep of U.S. firms that sell the non-traditional ETFs, seeking a host of details about their sales to investors with accounts smaller than $10 million.

Finra, the industry's own watchdog, targeted ETFs that use leverage and aim to provide double or triple the return of an index, or its inverse performance, and that were held for more than 10 days.

Finra issued Regulatory Notice 09-31 on June 11 to remind brokers that any security they offer must be suitable for their customers. The performance of some of the ETFs in question suggests their returns can differ greatly over longer periods than their stated investment horizon of a single day, it said.