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Written by 6:51 pm Blog, Current Investigations

Investor Alert: Structured Notes & Short Term Steepeners

Structured notes products are, generally speaking, unsecured debt with payoffs linked to a variety of underlying assets. These products can be attractive to investors because they can offer higher returns and might even feature a level of principal protection—meaning some or all of your initial investment may be guaranteed by the issuer if the investment is held to maturity or called, subject to the credit worthiness of the issuer. However, these products can have significant drawbacks such as credit risk, market risk, lack of liquidity and high hidden costs. In addition, they may be callable after a fairly short period of time, like one year.

One example of a structured product is a “steepener,” which allows investors to bet on the shape of the yield curve. The return on this type of product is linked to the spread between longer- and shorter-term interest rates—that is, the so-called steepness of the curve. For example, the return on one widely available product increases when the yield curve steepens and decreases when the yield curve flattens. Steepeners can be appealing to investors chasing return because some of these products have initial fixed interest rates that are high, and these products are often principal protected, but they do have their drawbacks. The fixed rates often convert to floating rates that typically change in concert with the steepness of the yield curve, as described above, so your return can vary or fall over time. Moreover, they usually have longer maturities, the secondary market for these products may be illiquid and they are often callable.

In August 2015, the Securities and Exchange Commission issues a risk alert which discussed structured products.  The SEC’s alert stated that it had analyzed 26,600 structured product transactions totaling $1.25 billion, and found a significant number of instances in which the investments were unsuitable for the purchasers’ investment objectives and needs.

The White Law Group has been investigating brokerage firms who are improperly recommending structured retail products to their clients, such as the following:

Merrill Lynch Strategic Return Notes. 
-BNP PARIBAS Structured Notes
-JP Morgan Chase Return Optimization Notes
-JP Morgan Target Term Securities
-Credit Suisse Structured Notes
-HSBC Callable Leveraged Steepener Notes due December 11, 2028

The foregoing information, which is all publicly available, is being provided by The White Law Group.   The White Law Group, LLC is a national securities fraud, securities arbitration, investor protection, and securities regulation/compliance law firm with offices in Chicago, Illinois and Franklin, Tennessee.

For more information on the firm and it’s representation of investors, visit www.whitesecuritieslaw.com.

For a free consultation with a securities attorney, please call (888) 637-5510.

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