SEC Issues Letter Regarding Structured Product Valuation Disclosures
(Feb 2013)
Bloomberg's Kevin Dugan is reporting that the SEC has issued a letter to issuers of structured products late last week that offers guidance for the disclosures of estimated value in offering documents. The SEC letter addresses the concerns we and others have shared over the potential mispricing of structured products, which can be and are sold to retail investors -- you can read through our research papers on the topic.
The letter confirms that the SEC will require--though it is not clear...
Structured CDs: The Big Picture
(Feb 2013)
This week we have reviewed some of the issues surrounding structured certificates of deposit, giving an introduction, example offering documents (both simple and complex), the basics of FDIC insurance of these products, and a description of some of the tax implications investors should be aware of. We hope we have conveyed our reasons for thinking that structured CDs are complex and risky investments that, like structured products, are rarely suitable for retail investors.
But there is a...
Tax Consequences of Market-Linked CD Investing
(Feb 2013)
On this last day of structured CDs week here on the SLCG blog, we're going to discuss the tax consequences of investing in market-linked CDs (or structured CDs). We should probably start a blog post on taxes with a general disclaimer that we are not tax professionals and you should consult a tax professional or CPA before making an investment decision based upon tax consequences.
That being said, taxes are a pretty complicated issue for structured CDs. As mentioned earlier this week,...
So How Complicated Can Structured CDs Get?
(Feb 2013)
We could tell you that the last time we went fishing we caught a fish that was THIS BIG (motions with outstretched arms), but you probably wouldn't believe us unless we showed you. We wanted to take this opportunity to show some examples of truly complex structured certificates of deposit that have been constructed in recent months and years.
Let's take a look at JP Morgan's August 2012 fifteen year "Callable Variable Rate Range Accrual CDs Linked to 6-Month USD LIBOR and the S&P 500 Index"...
FDIC Insurance and Structured CDs
(Feb 2013)
As a continuation of our structured CDs week here on the SLCG blog, today we're going to discuss one of the biggest selling points for these products: FDIC insurance. FDIC insurance mitigates most of the credit risk found in structured products, but it may not be as significant a factor as the marking materials for structured CDs may suggest.
Structured products, the debt analog of structured CDs, are often maligned because of their exposure to credit risk. If the issuer of a structured...
What Does a Simple Structured CD Look Like?
(Feb 2013)
Okay, we've talked a bit about what structured CDs are and why we think they are interesting. But what does a structured CD offering document actually look like? Unfortunately, it isn't possible to find such documents from Bloomberg or the SEC website since structured CDs are not registered securities. However, you can often find offering documents using Google. For example, as a relatively simple equity-linked CD, we're going to take a look at the "Global Opportunity Certificate of Deposit...
Structured Certificates of Deposit Week
(Feb 2013)
Over the past several months, we have noticed more and more bank deposits that resemble structured products. These products go by various names: market-linked certificates of deposit, equity-linked certificates of deposit, contingent interest certificates of deposits, etc. For parsimony, we refer to these types of products as "structured CDs" or simply "SCDs".
We think structured CDs are a very significant development, as they can be designed to provide highly complex exposure, are almost...
Mis-sold Interest Rate Hedges
(Feb 2013)
The Financial Services Authority (FSA), Britain's highest financial regulatory agency, has ordered Barclays, HSBC, Lloyds, and Royal Bank of Scotland to review all of their interest rate linked swap agreements sold to small businesses. In an investigation, the FSA found that four banks had violated at least one of its rules in over 90% of the 173 cases reviewed. The London Evening Standard is reporting that seven other banks may also launch similar reviews.
Interest rate swaps -- and related...
Securities Class Action Filings Decrease in 2012
(Feb 2013)
Earlier this year, Cornerstone Research released 2012 review of Securities Class Action Filings in conjunction with the Stanford Law School -- see the press release. The report notes that the number of federal securities class action filings have decreased in recent years and, in particular, has fallen nearly 20% from 2011 to 2012. For the number of filings over the past sixteen years can be found below (Figure 2 in their report).
Cornerstone attributes the majority of the decline in class...
Oppenheimer to Pay US Airways $30 Million over Auction Rate Securities
(Feb 2013)
Oppenheimer & Co. has been ordered by a FINRA arbitration panel to pay US Airways $30 million in damages related to the purchase of several series of structured auction rate securities (ARS). The story is being covered by Caitlin Nish at the Wall Street Journal, Bill Singer at Forbes, and Keith Goldberg at Law360. You can find the US Airways v Oppenheimer award on our website.
ARS are debt instruments that paid interest rates that reflect the clearing prices of regular auctions. Oppenheimer...
