Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Thursday, December 17, 2009

FINRA Reminds Firms of Obligations Regarding Principal-Protected Notes

FINRA recently issued a regulatory notice on Principal-Protected Notes to remind firms of their sales practice obligations relating to principal-protected notes.  Here is the executive summary:

The retail market for principal-protected notes (PPNs) has grown in recent
years, in part because they are often marketed as combining the relative
safety of bonds with a potential for growth not available with traditional
fixed income products. However, these products are not risk-free, and
their terms and structures can be complex. Firms must ensure that their
promotional materials or communications to the public regarding these
products are fair and balanced, and do not overstate either the level of
protection offered or an investment’s potential returns. Firms also have a
duty to ensure that their registered representatives understand the risks,
terms and costs associated with these products, and that they perform an
adequate suitability analysis before recommending them to a customer.

Other Regulatory Action | Permalink

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