SLCG Research: Principal Protected Notes
(Jul 2010)
SLCG released today 'The Anatomy of Principal Protected Absolute Return Notes'.
Structured products are debt securities that often have unconventional and complex payoff structures. Their payoffs are often linked to a security or index, such as the S&P 500 or the Russell 2000, with asset classes ranging from equity, commodities, currencies and debt. A Principal Protected Absolute Return Barrier Note (ARBN) is one structured product that returns the absolute value of the return of the...
SLCG Research: Reverse Convertibles
(Jun 2010)
SLCG released today 'What TiVo and J.P. Morgan teach us about Reverse Convertibles'.
Structured products are debt securities that often have unconventional and complex payoff structures. Their payoffs are often linked to a security or index, such as the S&P 500 or the Russell 2000, with asset classes ranging from equity, commodities, currencies to debt. A reverse convertible note is an equity-linked structured product. It is a short-term note that pays a relatively high coupon rate...
FINRA Press Release: Auction Rate Securities
(May 2010)
FINRA Fines Nuveen $3 Million for Use of Misleading Marketing Materials Concerning Auction Rate Securities
The Financial Industry Regulatory Authority (FINRA) issued a press release this week announcing that
"it has fined Nuveen Investments, LLC, of Chicago, $3 million for creating misleading marketing materials used in sales of auction rate preferred securities (ARPS). The Nuveen Funds' ARPS were a form of auction rate securities, which are long-term securities with interest rates or...
Reverse Convertibles tied to TiVo Stock
(May 2010)
J. P. Morgan's 64% Note Tied to TiVo Stock Shows Risks of Reverse Convertibles
Bloomberg issued a news release reporting on the reverse convertible, a structured product, on TiVo.
A reverse convertible note is a type of structured product that is linked to an equity security or an index. It is a short-term note that pays a relatively high coupon rate compared to traditional notes. The returns of the note at maturity depends on whether the equity, called 'reference asset', falls below a...
FINRA Fines H&R Block Financial Advisors
(Feb 2010)
FINRA Fines H&R Block Financial Advisors $200,000 for Inadequate Supervision of Reverse Convertible Notes Sales, Suspends and Fines Broker for Unsuitable Sales to Retired Couple
The Financial Industry Regulatory Authority (FINRA) issued a press release today announcing that it had
[fined] H&R Block Financial Advisors, Inc., (n/k/a Ameriprise Advisor Services, Inc.) $200,000 for failing to establish adequate supervisory systems and procedures for supervising sales of [reverse convertible...
FINRA Regulatory Notice: Reverse Convertibles
(Feb 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...
SLCG Research: Abuse of Structured Finance
(Jan 2009)
SLCG released today 'Regions Morgan Keegan: The Abuse of Structured Finance'.
Six Regions Morgan Keegan (RMK) bond funds lost $2 billion in 2007. In the paper, we argue that the loss was not due to 'flight to quality' or 'mortgage meltdown' but to RMK's portfolio concentration in subordinated tranches of asset-backed securities.
We also find that RMK misrepresented to investors and the Securities and Exchange Commission (SEC) in several ways. Firstly, RMK did not disclose to the SEC...
SLCG Research: Collateralized Mortgage Obligations
(Jun 2007)
SLCG released today 'A CMO Primer: the law of Conservation of Structured Securities Risk'.
Recently, the finance industry witnessed the bailout of two Bears Sterns hedge funds and the collapse of Brookstreet Securities. Both had portfolio holdings of collateralized mortgage obligations (CMOs) and suffered huge losses thereof. We have seen such CMO losses before, when in 1994 interest rates rose, CMOs fell in value and bond mutual funds suffered unexpected losses.
In this paper, Dr....
Registered Rep.: A Tempest Over Structured Products
(Feb 2007)
A Tempest Over Structured Products
Registered Rep. issued a news release today reporting on the state of the structured products market. The sale of structured products has grown by an estimate of 33% from 2005 to 2006. Yet the general features of structured products seem to make these products unattractive: complex, expensive, and illiquid. Financial advisors might favor structured products for it enables portfolio diversification and for its ability to tailor to the specific needs of...
