"Crazy" products like the one that contributed to the recent market volatility need to be regulated, former financial regulator Bart Chilton told CNBC on Wednesday.
"Even Vegas … they haven't come up with as wild of bets as we have for these ETNs," said Chilton, referring to exchange-traded notes.
Two ETNs, in particular, have stood out amid the market tumult of the last few days: the ProShares Short VIX Short-Term Futures and the VelocityShares Daily Inverse VIX Short-Term ETN (XIV).
Both trade using leverage and provide inverse returns to the market's "fear gauge" known as the Cboe volatility index — the VIX. When the VIX falls, the two products rise. When the VIX soared Monday, both securities suffered severe losses.
On Tuesday, the XIV plunged 93 percent. After the price collapse, Credit Suisse, which issues the XIV, announced it is triggering the liquidation of the product.
Chilton, former commissioner of the Commodity Futures Trading Commission, pointed out that there is a clear difference between the "wild" leveraged and inverse exchange-traded products and the standard ETFs that track, for example, the S&P 500.
"These really exotic things, it reminds me back in the day with credit default swaps. They were really ingenious products, needed products for the markets. But Wall Street sort of went overboard and sliced and diced them, and we know what the result of that was: 2008," he said in an interview with "Power Lunch."
And while sophisticated investors may know what they are getting into with risky assets, retail investors need to be protected, he said.
"Mom and pop investors need to know that these things are really out there," he said. "You could risk everything and lose it."
There are also concerns about the products' overall impact on the market, which was seen over the last few days, Chilton said.
He said he'd be surprised if the Securities and Exchange Commission didn't propose new regulations on the products this year.
"What I think SEC is going to do is they're going to come up with the key regulations and they're going to put them in big font and make sure that if you've opted out of e-statements that you get them delivered to you," said Chilton.
His comments come on the heels of billionaire Leon Cooperman's call earlier in the day for regulation of these "crazy instruments" that are "destroying the best capital in the world."
— CNBC's Jeff Cox and Tae Kim contributed to this report.