CHARLOTTE, North Carolina (Reuters) - The Securities and Exchange Commission is considering offering investors more protection from a complex set of securities, known as structured products, according to a report released on Wednesday.
The head of the SEC’s office of compliance inspections and examinations said the agency is looking carefully at the products after a study of 11 broker-dealers found the firms may have engaged in questionable sales practices, the SEC report said.
“We are monitoring the way in which these products evolve, and are considering additional steps in the near future relating to structured securities products that may further bolster investor protection,” Carlo di Florio, director of the SEC’s compliance office, said in a statement.
Structured products are typically bonds with embedded derivatives. They can offer investors protection exposure to assets ranging from assets to commodities, while protecting against principal losses.
But they can also offer higher coupons than regular investment-grade corporate bonds in exchange for the investor taking on more risk. Investors may not always understand the risks they are taking.
The SEC’s study found that firms may have recommended structured products that were unsuitable for clients, or that were priced too high. Dealers may have also omitted facts about how these investments were created.
Because of the potential missteps, the SEC’s report recommended that broker-dealers bolster training for employees, focus on whether such investments are suitable for clients, and implement new oversight for the sale of structured products.
Reporting by Joe Rauch; Editing by Gary Hill