September 12, 2005 – NASD Provides Guidance Concerning the Sale of Structured Products
The Financial Industry Regulatory Authority (FINRA) published a NASD Notice to Members 05-59 providing guidance to members concerning their sales practice obligations when selling structured protects to retail customers.
The complexity of structured products can often obscure their risks. It is therefore important that investors are protected from unscrupulous sales practices that might arise in an unregulated environment. Brokers receive substantial commissions on the sale of structured products and are therefore more incentivized to sell the products than to serve the particular needs of their customers.
Not all investors are suited to investing in structured products. They should consider the product’s potential downside risks and upside returns, its payoff structure, credit risks and liquidity risks, any underlying securities to which the product is linked and the exposure to these underlying securities and the level of fees associated with purchasing these products.
SLCG has a dedicated website providing papers, notes and calculation tools on a variety of structured products.
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