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Policy Issues Raised by Structured Products

33 Pages Posted: 1 Nov 2006  

Jennifer E. Bethel

Babson College

Allen Ferrell

Harvard Law School; European Corporate Governance Institute (ECGI)

Abstract

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.

Keywords: Structured Products, Disclosure, Regulation

Suggested Citation

Bethel, Jennifer E. and Ferrell, Allen, Policy Issues Raised by Structured Products. BROOKINGS-NOMURA PAPERS ON FINANCIAL SERVICES, Yasuki Fuchita, Robert E. Litan, eds., Brookings Institution Press, 2007; Harvard Law and Economics Discussion Paper No. 560. Available at SSRN: https://ssrn.com/abstract=941720

Jennifer Bethel (Contact Author)

Babson College ( email )

Babson Park, MA 02457-0310
United States
781-239-5797 (Phone)
781-239-5004 (Fax)

HOME PAGE: http://faculty.babson.edu/bethel/

Allen Ferrell

Harvard Law School ( email )

Griswold 303 1525 Massachusetts Avenue
Cambridge, MA 02138
United States
(617) 495-8961 (Phone)
(617) 495-1110 (Fax)

European Corporate Governance Institute (ECGI)

c/o ECARES ULB CP 114
B-1050 Brussels
Belgium

HOME PAGE: http://www.ecgi.org

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