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Structured Products - Some Definitions

Posted by Jack Duval

Mar 18, 2013 3:15:20 AM

Due to the great variety of types of structured products, there is no one definition.  However, there are a number of traits that are common between them, including the use of a reference security or index and the use of derivatives.  Here are four definitions:


  1. Finra NTM 05-59, Structured Products:  "Structured products are securities derived from or based on a single security, a basket of securities, an index, a commodity, a debt issuance and/or a foreign currency."

  2. SEC Rule 434: "Securities whose cash flow characteristcs depend upon one or more indices or that have embedded forwards or options or securities where an investor's investment return and the issuer's paymet obligations are contingent on, or highly sensitive to, changes in the value of underlying assets, indicies, interest rates or cash flows."

  3. Structured Products in Wealth Management by Tolle, Hutter, Ruthemann, and Wohlwend: "The meaning of the term "structured products" as it is used in specialist literature is not the same everywhere.  This book defines structured products as combindations of derivates and traditional financial instrments, such as stock and bonds.  The various components are combined into a single financial instrument and securitized.  The inclusion of derivative components gives the structured product itself the characteristics of a derivative."

  4. Wikipedia:  "In finance, a structured product, also known as amarket linked investment, is generally a pre-packaged investment strategy based on derivatives, such as a single security, a basket of securities, options, indices, commodities, debt issuance and/or foreign currencies, and to a lesser extent, swaps.The variety of products just described is demonstrative of the fact that there is no single, uniform defnition of a structured product.."

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Topics: FINRA, NTM 05-59, Swaps, SEC Rule 434, Senior Investors, investments, SEC, Structured Products, fixed income

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