Determining the performance of each note can be complex and this calculation can vary significantly from note to note depending on the structure. Structured notes may have complicated payoff structures that can make it difficult for you to accurately assess their value, risk and potential for growth through the term of the structured note. You should, therefore, be prepared to hold a structured note to its maturity date, or risk selling the note at a discount to its value at the time of sale. In addition, issuers often specifically disclaim their intention to repurchase or make markets in the notes they issue. As a result, the only potential buyer for your structured note may be the issuing financial institution’s broker-dealer affiliate or the broker-dealer distributor of the structured note. Your ability to trade or sell structured notes in a secondary market is often very limited as structured notes (other than exchange-traded notes known as ETNs) are not listed for trading on security exchanges. After issuance, structured notes may not be re-sold on a daily basis and thus may be difficult to value given their complexity. The estimated value of the notes is likely lower than the issuance price of the note to investors because issuers include the costs for selling, structuring or hedging the exposure on the note in the initial price of their notes. Issuers now disclose an estimated value of the structured note on the cover page of the offering prospectus, allowing investors to gauge the difference between the issuer’s estimated value of the note and the issuance price.
The price you will pay for a structured note at issuance will likely be higher than the fair value of the structured note on the date of issuance.
Depending on the nature of the linked asset or index, the market risk of the structured note may include changes in equity or commodity prices, changes in interest rates or foreign exchange rates, or market volatility. For structured notes that do not offer principal protection, the performance of the linked asset or index may cause you to lose some, or all, of your principal. Many structured notes do not offer this feature. Some structured notes provide for the repayment of principal at maturity, which is often referred to as “principal protection.” This principal protection is subject to the credit risk of the issuing financial institution. This payoff calculation may include leverage multiplied on the performance of the reference asset or index, protection from losses should the reference asset or index produce negative returns, and fees. You should understand the reference asset(s) or index(es) and determine how the note’s payoff structure incorporates such reference asset(s) or index(es) in calculating the note’s performance. You and your broker should take time to fully understand the manner in which your return on a structured note is calculated. Risks and Other Considerations with Structured NotesĬomplexity. Some common types of structured notes sold to individual investors include: principal protected notes, reverse convertible notes, enhanced participation or leveraged notes, and hybrid notes that combine multiple characteristics. Financial institutions typically design and issue structured notes, and broker-dealers sell them to individual investors. Structured notes have a fixed maturity and include two components – a bond component and an embedded derivative. Thus, your return is “linked” to the performance of a reference asset or index. Structured notes are securities issued by financial institutions whose returns are based on, among other things, equity indexes, a single equity security, a basket of equity securities, interest rates, commodities, and/or foreign currencies. Before investing in structured notes, you should understand how the notes work and carefully consider their risks. While structured notes may enable individual retail investors to participate in investment strategies that are not typically offered to them, these products can be very complex and have significant investment risks. The SEC’s Office of Investor Education and Advocacy is issuing this Investor Bulletin to inform investors of features – and some potential risks – of structured notes.
0 kommentar(er)
