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Structured Products: Legal and Regulatory Materials

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FINRA Materials


FINRA Releases and Publications Relating to Structured Products

  • 10/2013 FINRA Report on Conflicts of Interest
  • 4/22/2013 Interpretive Guidance Regarding the Use of Pre-Inception Index Performance in Institutional Communications
    This interpretive letter to ALPS Distributors relates to back-tested or hypothetical performance data for a new market measure.
  • 4/9/2013 Remarks From the National Compliance Outreach Program for Broker-Dealers
    Chairman and CEO Richard G. Ketchum addresses regulatory concerns regarding complex and structured products and conflicts of interest.
  • 1/2013 FINRA Annual Regulatory and Examination Priorities Letters
    Each year, FINRA publishes its Annual Regulatory and Examination Priorities Letter to highlight issues of importance to FINRA's regulatory programs. In recent years, including in its most recent letter (January 2013), FINRA has highlighted a variety of concerns relating to structured products.
  • 12/2012 FINRA Regulatory Notice 12-55 – Suitability
    In November 2010, the Securities and Exchange Commission (SEC) approved FINRA Rule 2111(Suitability), which became effective on July 9, 2012. In May 2012, FINRA issued Regulatory Notice 12-25, which provides guidance on the rule in a "frequently asked questions" (FAQ) format. This Notice addresses two issues discussed in Regulatory Notice 12-25: the scope of the terms "customer" and "investment strategy." In addition, FINRA has created a suitability Web page that, among other things, will locate in one place questions and answers regarding FINRA Rule 2111.
  • 7/10/2012 FINRA Investor Alert: Exchange-Traded Notes—Avoid Unpleasant Surprises
    This investor alert describes ETNs, leveraged and reverse ETNs, ETN trading, issuance, and redemption. This alert also warns investors of indicative value and market price as well as the various risks associated with ETNs.
  • 5/2012 FINRA Regulatory Notice 12-25 - Suitability
    On May 21, 2012, FINRA issued Regulatory Notice 12-25, in which FINRA provided additional guidance on its new suitability rule, FINRA Rule 2111. Some of the additional guidance applies to sales practices in the structured products industry. A broker’s recommendation of a security must be consistent with his or her customer’s best interests.
  • 1/2012 FINRA Regulatory Notice 12-03 - Complex Products
    FINRA Regulatory Notice 12-03 discusses the heightened supervision of complex products, gives guidance to firms about supervision, and attempts to identify the characteristics that render a product “complex” – which is largely focused on structured products.
  • 11/16/2011 FINRA Investor Alert: The Grass Isn’t Always Greener—Chasing Return in a Challenging Investment Environment
    This investor alert discusses high yield investment products such as floating-rate loans, structured retail products, and leveraged products in the context of a challenging investment environment. The alert advises investors to ask certain key questions before changing investments as well as to be wary of as well as of fraudulent high-yield investments.
  • 11/2011 FINRA Targeted Examination Letter: Spread- Based Structured Products
    FINRA’s November 2011 targeted exam letter relating to spread-based structured products.
  • 5/2011 FINRA Regulatory Notice 11-25 - Know Your Customer & Suitability
    On November 17, 2010, the Securities and Exchange Commission (SEC) approved FINRA’s proposal to adopt rules governing know-your-customer and suitability obligations for the consolidated FINRA rulebook. On January 10, 2011, FINRA issued Regulatory Notice 11-02, which provided guidance regarding the new rules and announced an implementation date. This Notice announces a new implementation date of July 9, 2012, and provides additional guidance in response to some recent industry questions and concerns.
  • 1/2011 FINRA Regulatory Notice 11-02 - Know Your Customer and Suitability
    The SEC approved FINRA’s proposal to adopt rules governing know-your-customer and suitability obligations for the consolidated FINRA rulebook. The new rules are based in part on and replace provisions in the NASD and NYSE rules. The text of the new rules is set forth in an attachment to this Notice. The rules take effect on July 9, 2012.
  • 10/2010 FINRA Regulatory Notice 10-51 - Commodity Futures-Linked Securities
    FINRA Regulatory Notice 10-51 focuses on four key areas: (1) Possible deviation between the performance of the commodity futures-linked security and the performance of the referenced commodity; (2) Ensure communications are fair and balanced and provide appropriate disclosures; (3) Conduct reasonable suitability assessments prior to recommending commodity futures-linked securities to customers; (4) Supervision and training of the firm’s registered representatives.
  • 10/2010 FINRA Regulatory Notice 10-52 - Free Writing Prospectuses
    The content standards, principal review requirements and applicable filing requirements contained in NASD Rules 2210 (Communications with the Public) and 2211 (Institutional Sales Material and Correspondence ) now apply to free writing prospectuses (“FWPs”) distributed by broker-dealers in a manner reasonably designed to lead to their broad unrestricted dissemination, as described in Rule 433 of the Securities Act. As a result, FINRA is withdrawing, in part, previous interpretative guidance from August 2006 that excluded FWPs from the requirements of Rules 2210 and 221.
  • 2/2010 FINRA Regulatory Notice 10-09 - Reverse Convertibles
    FINRA Regulatory Notice 10-09 focuses on three key areas: (1) Communications with the public regarding the promotion of reverse convertibles; (2) Review suitability before recommending purchase; (3) Supervision and training of a firm’s registered representatives.
  • 12/2009 FINRA Regulatory Notice 09-73 - Principal-Protected Notes
    FINRA Regulatory Notice 09-73 focuses on three key areas: (1) Ensure communications are fair and balanced and provide appropriate disclosures; (2) Conduct reasonable suitability assessments prior to recommending principal-protected notes to customers; (3) Train the firm’s registered representatives.
  • 11/2009 FINRA FAQ - Non-Traditional ETFs
    This FAQ describes leveraged/inverse ETFs, the effects of the reset feature of a leveraged or inverse ETF on suitability, the requirements for suitability analysis, the suitability of leveraged and inverse ETFs for retail investors, guidance for firms as new complex or non-traditional ETFs are introduced to the market, and leveraged/reverse mutual funds.
  • 9/2005 NASD Regulatory Notice 05-59 - Structured Products
    NASD Regulatory Notice 05-59 focuses on five key areas: (1) Provide balanced disclosure in promotion efforts; (2) Ascertain accounts eligible to purchase structured products; (3) Suitability and fair dealing with customers; (4) Supervision and supervisory control system; (5) Training.
  • 4/2005 NASD Regulatory Notice 05-26 - New Products
    NASD Regulatory Notice 05-26 focuses on two key areas: (1) Written formal procedures; (2) Survey of best practices.

FINRA Enforcement Actions Relating to Structured Products

  • 12/15/2011 FINRA Enforcement Actions: Wells Fargo Investments, LLC
    FINRA fines Wells Fargo $2 million for unsuitable sales of reverse convertibles to elderly customers and failure to provide breakpoints on UIT sales. Firm agrees to pay restitution to affected customers.
  • 4/12/2011 FINRA Enforcement Actions: Santander Securities Corporation
    FINRA fines Santander Securities $2 million for deficiencies in its structured products business and unsuitable reverse convertible sales. Firm reimburses more than $7 million for reverse convertible losses.
  • 4/11/2011 FINRA Enforcement Actions: UBS Financial Services, Inc.
    FINRA fines UBS financial services $2.5 million and orders UBS to pay restitution of $8.25 million for omissions that effectively misled investors in sales of Lehman-issued principal-protected notes.
  • 10/20/2010 FINRA Enforcement Actions: Ferris, Baker Watts LLC
    FINRA orders Ferris, Baker Watts to pay nearly $700,000 for inappropriate sales of reverse convertible notes. Firm to pay restitution of $189,723 for unsuitable sales.
  • 2/16/2010 FINRA Enforcement Actions: H&R Block Financial Advisors, Inc.
    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. Regulator issues guidance for firms and for retail investors regarding risks, potential rewards and complexity of this popular structured product.
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