February 12, 2010 - FINRA Reminds
Firms of Their Sales Practice Obligations With Reverse Exchangeable Securities
(Reverse Convertibles)
The Financial
Industry Regulatory Authority (FINRA) published Regulatory
Notice 10-09 reminding financial firms selling reverse convertibles
notes (RCN) to provide fair and
balanced sales materials and communications, including proper statement on the
risks associated with such notes.
In an upcoming SLCG study on RCN,
we have found that investors of RCNs have been overcharged by brokerage firms.
The extent of the overcharge is so great that the expected return of RCNs is
negative. Since sales of RCNs have continued to grow, it is evident that
investors are not aware of the costs of such a complex investment.
SLCG
also provides to the public free valuation tools
for certain structured products such as principal protected notes and leveraged
index-linked notes.
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