FINRA Investor Alert: Municipal Bonds
(Jun 2009)
Municipal Bonds-Staying on the Safe Side of the Street in Rough Times
The Financial Industry Regulatory Authority (FINRA) published an Investor Alert on municipal bonds. This provides a thorough background on municipal bonds and advice on investing.
There are certain risks in investing in municipal bonds. For example, the municipality issuing the municipal bonds can default, leading to the loss of some (if not all) interest and principal to the investor. This is called default risk....
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...
FINRA Investor Alert: Auction Rate Securities
(Nov 2008)
Auction Rate Securities: What Happens When Auctions Fail
The Financial Industry Regulatory Authority (FINRA) published an Investor Alert on auction rate securities (ARS). This provides quite a thorough background on ARS, their auction mechanism and risks of failure, alternatives to ARS, and redemption and liquidity issues.
ARS are issued widely by institutions ranging from closed-end mutual funds, municipalities to student loan trusts. ARS are long-term floating rate securities whose...
SLCG Research: Equity Indexed Annuities
(Sep 2008)
SLCG released today 'An Economic Analysis of Equity-Indexed Annuities'.
On June 25, 2008, the Securities and Exchange Commission (SEC) issued a rule proposal to exclude equity-indexed annuities from exemption from Federal securities laws. By requiring registration of equity-indexed annuities under Federal securities laws, the rule gives investors of equity-indexed annuities the same protection as it gives to investors of other securities similar to equity-indexed annuities.
In this...
FINRA Investor Alert: Cat Bonds
(Apr 2008)
Catastrophe Bonds and other Event-Linked Securities
The Financial Industry Regulatory Authority (FINRA) published an Investor Alert on catastrophe bonds, or 'cat bonds'. Cat bonds pay higher interest rates compared to the equivalent corporate bonds.
However, there are risks involved in holding cat bonds. Investors of a cat bond can lose interest and principal if the catastrophe, to which the bond is linked, occurs. Cat bonds are quite illiquid, the pricing information are generally not...
SLCG Research: Closed-end Fund IPOs
(Jun 2007)
SLCG released today 'Closed-end Fund IPOs'.
In this paper,
Dr. Edward O'Neal explains how closed-end funds trade at a discount to their net asset value (NAV). Dr O'Neal finds that at the initial public offering (IPO), a closed-end fund's offering price is set at its NAV. Yet during the year after the IPO, a closed-end fund's price drops as much as 5% from its offering price at the IPO. Furthermore, investors pay huge commissions on the sale of the closed-end fund, generating a premium...
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...
Forbes: Guaranteed to Go Up
(Nov 2006)
Guaranteed to Go Up
Forbes published an article examining structured products sold to retail investors around the world. It describes how a structured product works, the payoffs and risks, using an example of the principal protected note. It then explains how the principal protected note is equivalent to and can be replicated by a combination of traditional securities and derivatives.
A principal protected note returns at least the face value of the note at maturity. If the reference...
FINRA Investor Alert: Variable Annuities
(Mar 2006)
Should You Exchange Your Variable Annuity?
The Financial Industry Regulatory Authority (FINRA) published an Investor Alert on how to determine if investors should exchange their variable annuity for another model. An annuity makes periodic payments to the holder of the annuity. There are fixed annuities that make fixed payments and variable annuities that make variable payments.
While equity-indexed annuities have become increasingly popular, some have questioned their value and...
FINRA Press Release: Structured Products
(Sep 2005)
NASD Provides Guidance Concerning the Sale of Structured Products
The Financial Industry Regulatory Authority (FINRA) published a NASD Notice to Members 05-59 providing guidance to members concerning their sales practice obligations when selling structured protects to retail customers.
The complexity of structured products can often obscure their risks. It is therefore important that investors are protected from unscrupulous sales practices that might arise in an unregulated...
