SEC Staff Report on Issues in Sales of Structured Products to Retail Investors
July 27, 2011
The Staff of the SEC's Office of Compliance Inspections and Examinations issued a summary report identifying various concerns relating to structured products marketed to retail investors. The report takes a generally critical view as to whether these products are suitable for retail investors and makes a number recommendations for broker-dealers marketing structured products, including: (i) adequate procedures and controls; (ii) requiring sales representatives to have specialized training in structured products; (iii) controls for review of customer suitability and concentration levels; (iv) clearer disclosure to customers (particularly as to the meaning of "principal protection"); and (v) review of the models used by traders to value the products in the secondary market.
On the basis of the report, firm should make a priority of reviewing their dislosure materials, their internal training and supervisory practices, valuation models and practices as to the disclosure of valuations to customers.
Please contact any of the following Cadwalader attorneys if you have any questions about this item: Steven Lofchie - [email protected]; Ray Shirazi - [email protected]; Jeffrey Robins - [email protected]; Glen Barrentine - [email protected].
Cross References
FINRA Investor Alert, The Grass Isn't Always Greener - Chasing Return in a Challenging Investment Environment (July 25, 2011)
FINRA RN 10-09 (guidance on sales of reverse convertibles)
NASD NTM 05-59 (guidance on sales of structured products)