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Capital Markets

Structured products: New guidelines for issuers

Structured product issuers have a new set of guidelines that they will be expected to informally adhere to after trade organizations, including the International Swaps and Derivatives Association, released non-binding principles for managing relationships with retail investors.

The structured products industry has been criticized for a lack of transparency, particularly when it comes to the fees embedded in notes sold to retail investors, and it is hoped the new guidelines will encourage issuers to be more open and give investors more confidence to buy equity-linked and other structured products.

The principles include guidance on product transparency, risk disclosure, fees and costs, potential conflicts of interest, client appropriateness and suitability, and oversight and compliance. They complement a set of guidelines issued in July 2007 that laid out principles for managing the provider-distributor relationship.

The new guidelines focus on the relationship between distributors and individual investors and are explained in a paper entitled Structured products: principles for managing the distributor-individual investor relationship, which is the result of collaboration between Isda, the European Securitization Forum, the International Capital Market Association, the London Investment Banking Association and the Securities Industry and Financial Markets Association, a group known as the Joint Associations Committee (JAC).

"This second set of JAC principles articulates the values that market participants share as they promote the continued development of a healthy market in retail structured products," says JAC chairman Timothy Hailes, a managing director and associate general counsel at JPMorgan Chase in London.

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