FINANCIAL INDUSTRY ASSOCIATIONS ISSUE STRUCTURED PRODUCTS
PRINCIPLES
Posted July 9, 2008
A non-binding document, “Structured Products: Principles for Managing
the Distributor-Individual Investor Relationship,” identifies these
issues along with fees and costs, management of potential conflicts, and
new product reviews as key areas of concern. The associations issued a
draft document on May 12 and are re-issuing it now following a public
comment period.
The associations that participated are the European Securitisation Forum
(ESF), International Capital Market Association (ICMA), London
Investment Banking Association (LIBA), the International Swaps and
Derivatives Association (ISDA) and the Securities Industry and Financial
Markets Association (SIFMA).
The positions of the associations on the principles in the document include:
§ Product Transparency: Ensuring that product descriptions are clear and not misleading, and that product materials reflect the knowledge and sophistication of individual investors.
§ Risk Disclosure: Should include mentions of risks not normally associated with a given product.
§ Fees and Costs: Distributors should have mechanisms to consider the appropriateness of fees.
§ Potential Conflicts Management: Distributors should have processes to mitigate, manage or disclose material conflicts of interest in sales of structured products.
§ Credit Ratings: When providing issuers’ credit ratings, distributors should make clear that these do not represent a rating of the product itself.
§ New Product Review: Distributors should understand new products being issued, and conduct independent assessments if necessary.
§
Liquidity/Secondary Market: Investors should be informed of the
likelihood of selling a structured product before maturity.