Policy Issues Raised by Structured Products
Jennifer E. Bethel
Harvard Law School; European Corporate Governance Institute (ECGI)
BROOKINGS-NOMURA PAPERS ON FINANCIAL SERVICES, Yasuki Fuchita, Robert E. Litan, eds., Brookings Institution Press, 2007
Harvard Law and Economics Discussion Paper No. 560
The structured products market has experienced explosive growth in the United States over the last five years. The market is expected to continue growing 20%-25% each year, given the still comparatively small size of the U.S. market and the expected increase in demand for fixed-income type investments by retiring baby-boomers. While often performing an invaluable role in facilitating the transfer of risk and improving the ability of investors to more fully diversify their portfolios, these products also raise important investor protection concerns. Investment banks are increasingly offering structured products to retail investors through their broker networks. Whether retail investors adequately understand the complicated payoff structure of these products, which often include embedded options, and the implicit fees being charged for these products is the source of these investor protection concerns. The illiquidity of most structured products, including even listed ones, heightens these concerns. The current regulation of structured products and possible reforms are examined with these investor protection concerns in mind.
Number of Pages in PDF File: 33
Keywords: Structured Products, Disclosure, Regulation
Date posted: November 1, 2006
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