Complex Structured Products Still The Focus Of FINRA

The Financial Industry Regulatory Authority (FINRA) has announced that it is going to be conducting target exams or sweeps of brokerage firms in order to obtain information about their marketing of a group of structured products called reverse convertibles, according to the FINRA release and an article in Bloomberg.

Reverse convertibles are typically peddled to retirees, or other income oriented investors, as short term bonds or notes that provide an enhanced return. These investment vehicles are extremely complex combinations of a loan to the issuer and a combination of long and short put options on a linked security. The yield on the bonds or notes is in reality a premium on the put option and interest on the investor’s loan to the issuer. Sound complicated? It is and this is the reason that it is virtually impossible for an ordinary investor to understand and appreciate the risk of these structured products, which can result in the loss of a portion or all of his or her principal.

Previously FINRA has sent NTM 10-09 in 2009 and NTM 05-57 in 2005 to firms reminding them of their obligation to ensure that marketing materials for the high yield securities are fair and balanced.

If you have suffered losses in these complex products, please contact our securities law firm for a confidential, no obligation consultation at 1-800-259-9010.

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