Structured Products

What you'll learn

• ✓Describe a reverse convertible
• ✓Spot hidden risk

Lessons

1. 🎁
   The Private Bank Pitch

   12% guaranteed and 100% protected, supposedly
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2. Unbundling the Wrapper

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3. The Product Zoo

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4. Lehman's Principal Protected Notes

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5. Final Boss: Mechanics and Costs

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Sources

All content is drawn from the sources below. We deliberately avoid unverified material.

• Exotic Options and Hybrids (Bouzoubaa & Osseiran)
  Wiley · book
  Reference textbook for structured product anatomy: zero-coupon bond plus derivative, reverse convertibles, autocallables, barrier options. Used across lessons 2 and 3.
• Statement on structured retail products: good practices for product governance arrangements (2017)
  European Securities and Markets Authority (ESMA) · institutional
  Regulator statement laying out expectations for product governance on structured retail products. Used in lesson 5 boss.
  https://www.esma.europa.eu/
• Structured Products: Thematic Review of Product Development and Governance (TR15/2, March 2015)
  Financial Conduct Authority (FCA) · institutional
  FCA review documenting weaknesses in product governance and value-for-money concerns on retail structured products. Used in lessons 4 and 5.
  https://www.fca.org.uk/publications/thematic-reviews/tr15-2-structured-products-thematic-review-product-development-and
• The dark side of financial innovation (Henderson & Pearson, 2011)
  Journal of Financial Economics 100(2), 227 to 247 · academic
  Academic study finding that retail structured products in the sample were issued at prices meaningfully above the fair value of their embedded derivatives, implying significant embedded fees. Used in lesson 5 boss.
  https://www.sciencedirect.com/science/article/abs/pii/S0304405X11000183
• SEC v. UBS Financial Services Inc. (Lehman PPN settlement, 2011)
  US Securities and Exchange Commission · institutional
  SEC enforcement action over misleading marketing of Lehman Principal Protected Notes to retail clients. Backs the lesson 4 case study on issuer credit risk.
  https://www.sec.gov/news/press/2011/2011-64.htm
• Investor Bulletin: Structured Notes
  SEC Office of Investor Education and Advocacy · institutional
  SEC bulletin warning retail investors that structured notes are senior unsecured obligations of the issuer and that 'principal protection' is conditional on issuer solvency. Used in lessons 3 and 4.
  https://www.sec.gov/oiea/investor-alerts-bulletins/ib_structurednotes.html
• Investor Alerts: Structured Notes With Principal Protection
  FINRA · institutional
  FINRA investor alert reinforcing the SEC message on structured notes and issuer credit risk after the Lehman case. Used in lesson 4.
  https://www.finra.org/investors/insights/structured-notes-principal-protection-note-terms-carefully
• Lehman Brothers Holdings Chapter 11 filing, September 15, 2008
  US Bankruptcy Court / SEC archives · institutional
  Primary source for the Lehman bankruptcy date and the senior unsecured ranking of Lehman PPNs. Used in lesson 4.