Structured Products: Sales Practice Issues

On September 12, 2005, the NASD published Notice to Members 05-59, "Guidance Concerning the Sale of Structured Products." In this Notice, the NASD clarifies the obligations of members in the sales of structured products, stresses its concern that members may not be fulfilling these obligations (especially in sales to retail customers) and focuses members on certain compliance provisions considered critical.

The Notice summarizes the obligations of members which are of primary concern, including the requirements to:

1. provide balanced disclosure of risks and benefits in promotional efforts (e.g., oral presentations and supplemental sales materials) pursuant to Rule 2210; including a description of the derivative component of the product, if any, disclosure of liquidity risks and credit rating delineations between credit worthiness of the issuer and market risk of the structured product or referenced security;