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: 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.