In January 2015, the SEC’s Office of Investor Education and Advocacy issued an investor bulletin relating to structured notes. The alert may be found at the following link: http://www.sec.gov/oiea/investor-alerts- bulletins/ib_structurednotes.html.
The bulletin describes various types of common structured notes, and highlights several key risk factors that are commonly associated with this product class. The bulletin also identifies a variety of recommended questions that investors should ask, prior to investing in these products.
In some respects, the bulletin builds on prior SEC alerts, including:
- The SEC and FINRA’s joint 2011 alert, “Structured Notes with Principal Protection: Note the Terms of Your Investment6”; and
- “Equity-Linked CDs.7”
In addition, the bulletin builds on some of the themes raised in the SEC’s 2012 “sweep letter”:
- The bulletin describes structured notes as an instrument with two components: a bond component and an embedded derivative.
The bulletin notes to investors that the purchase price of a structured note is likely to be higher than the instrument’s fair value on the issue date.
The bulletin encourages investors to consider the issuer’s estimated value of a structured note, and whether it is relevant to one’s investment decision.