The report states that larger broker-dealers should focus on issues such as:
- having adequate procedures and controls to prevent and detect possible abuses in the secondary market for structured securities products;
- disclosing material facts regarding the structured securities products being offered;
- requiring registered representatives and their supervisors to complete specialized training in structured securities products before selling these products to customers;
- accurately listing structured securities products on customer statements;
- having controls to independently review their desk prices of structured securities products in the secondary market;
- having controls to adequately review the suitability of these products for customers; and
- having controls to review customer concentrations in the structured securities products it sold.
For smaller retail broker-dealers, the staff report recommends focusing on:
- the suitability of structured securities products recommended to retail customers;
- establishing, maintaining and enforcing proper supervisory procedures relating to suitability determination for purchasers of structured securities products; and
- having adequate training for registered representatives who sell structured securities products and for their supervisors.
The most significant SSP-related observations made during examinations of retail firms related to suitability with respect to the sale of Reverse Convertibles. The report states that there were numerous instances at these firms where the sale of RCNs did not appear to coincide with the customers’ stated investment objectives and financial profile, saying “the firms solicited the purchase of RCNs without adequately disclosing to customers the material risks associated with investing in RCNs.”
To see the SEC press release, click here and for a copy of the report, click here.
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