Structured products are notes whose payments at maturity depend on the value of a “reference asset,” such as the price of an individual stock, the level of an index of stocks, the level of a group of currencies, or one or more interest rates. Structured products are typically unsecured obligations of a brokerage firm and therefore can have significant credit risk in addition to the risk of fluctuations in the promised maturity payments.

Structured products are complex investments originally sold to sophisticated investors through private offerings. In recent years, an increasing number of high-cost structured products have been sold to unsophisticated retail investors.

Structured products are essentially combinations of notes and options which are bundled and sold to retail investors at extraordinary markups. In addition to being over-priced at the public offering, structured products tend to be extremely illiquid in the secondary market.

Structured products are offered under a wide variety of brand names but can be grouped into three broad categories.

• The first category of structured products, which we refer to as “reverse convertibles,” contains notes with limited exposure to gains and large exposure to the reference asset’s capital depreciation. This category includes reverse convertible and reverse exchangeable notes, ELKS, SPARQS, some SuperTrack notes, and some PLUS notes. Investors in reverse convertibles are incompletely compensated for their investments’ risks through coupon payments and small loss buffers. Our database currently contains 2,552 tear sheets for reverse convertible products.
  
• The second category of structured products encompasses what we call “tracking securities.” Tracking securities have maturity payoffs that can be either above or below the face value of the note depending on the reference asset’s value at maturity. Tracking security products generally do not pay interest coupons. A portfolio of several tracking securities essentially provides market exposure like an index fund, but at a higher cost and with much less liquidity. Our database currently contains 22 tear sheets for tracking securities.
  
• The third category of structured products, misleadingly marketed as “principal protected,” consists of notes which promise a maturity payoff of at least the face value of the note. Principal protected notes typically do not pay interest coupons but instead pay more than the face value of the note at maturity if the reference asset’s value has increased during the term of the note. Our database currently contains 29 tear sheets for securities marketed as "principal protected" notes.
  

SLCG’s structured products research, along with other structured products research, is listed to the right. We also provide links to important regulatory commentary on structured products.

Additional tabs at the top of this page provide more detailed descriptions of the various types of structured products and free access to SLCG’s summary analysis of thousands of recent structured product offerings.

The content of this website and the summary analyses are for educational purposes only. Please consult your financial and legal advisers before making any investment decision.