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Structured Notes

What is a structured note? Structured notes are sometimes referred to as Exchange Traded Notes (“ETNs”) or fixed coupon notes.  These notes are unconditional, unsecured and unsubordinated debt securities which are backed by banks such as Barclays, Bank of America, Morgan Stanley, JPMorgan Chase, UBS and other institutional lenders.  Structured notes are linked to the performance of individual stocks or indices, backed only by the creditworthiness of the issuer, and are therefore subject to significant risk.

How do ETNs or structured notes work? The issuer promises to pay the investor the amount reflected (usually the closing price) in the particular stock or index it is linked to, less the fees to the investor.  These payments are often referred to as “coupon payments”.  Coupon payments are paid only if the closing price is equal to or greater than a specified trigger price.  These secured notes are often traded on an exchange, similar to an Exchange Traded Fund (ETF), however, unlike equity-backed securities, structured notes do not own the underlying assets they are linked to.  Structured notes may be redeemed by the investor or called by the issuer prior to the maturity date.  These processes are highly complex.

Are structured notes risky investments? Investing in structured notes carries significant risks.  Since structured notes do not own the underlying assets they are linked to, the only protection for the principal is the issuer’s promise to pay.  Unlike asset-backed securities, structured notes are dependent on the credit rating of the issuer.  In the event of a downgrade in a bank’s credit rating, the value of the note may decline – even if the underlying asset is performing well.  An investor may lose up to 100% of its principal investment.  The risk of loss requires enhanced disclosures made by the issuer.

Am I a suitable investor? Conservative investors, retirees, unsophisticated, inexperienced or non-accredited investors may not be suitable for investments in these complicated structured products.  Current market volatility due to the coronavirus (COVID-19) has resulted in substantial losses for many investors.  The market crash in the recent weeks has prompted our firm to investigate the unsuitable sale of these securities to conservative investors.  You may not be suitable for an investment in structured notes if any or all of the following applies to you:

  • You do not fully understand the risks inherent in an investment in the securities, including the risk of loss of your entire initial investment.
  • You seek an investment designed to provide a full return of principal at maturity.
  • You cannot tolerate the loss of all or a substantial portion of your investment, and you are not willing to make an investment that may have the same downside market risk as the underlying equity.
  • You seek an investment that participates in the full appreciation of the underlying equity and whose return is not limited to the applicable contingent coupon payments.
  • You prefer to receive any dividends paid on the underlying equity.
  • You prefer the lower risk, and therefore accept the potentially lower returns, of fixed income investments with comparable maturities and credit ratings.
  • You seek guaranteed current income from your investment.
  • You are not willing or are unable to assume the credit risk associated with the issuer for all payments under the securities, including any repayment of principal.

These notes may also be referred to as: Auto Callable Securities; Callable Yield Notes; Accelerated Return Notes; Strategic Return Notes; Trigger Performance Securities; Capped Leverage Return Notes; Target Term Securities; Market Linked Notes; E-Tracs; Return Optimization Notes; Performance Leveraged Upside Securities (PLUS); and Equity Linked Securities (ELKs).

If you have concerns about the suitability of your investments or have suffered a loss in the stock market due to suspected broker fraud or misconduct, contact Snyderburn, Rishoi & Swann to schedule a FREE consultation with one of our qualified lawyers.  SRS Law may be able to initiate a claim on behalf of a wronged investor and provide an opportunity to recoup losses through binding arbitration.