The U.S. Securities and Exchange Commission is asking financial firms for information on how they market "principal-protected" notes," Bloomberg reported on Friday, citing people familiar with the matter.
Principal-protected notes, complex securities marketed as carrying a
money-back guarantee, have started to make a comeback lately after losing much of their luster when Lehman Brothers collapsed in 2008.
The SEC wants to know if investors in "principal protected" securities are being misled into thinking the principal of their investment will not
decline in value because of the name of the security, Bloomberg said. The
agency is also looking at how firms describe the risks associated with the products.
This year, Bank of America Corp , Barclays Plc , Citigroup Inc , HSBC
Holdings Plc and JPMorgan Chase & Co all have filed offering statements with U.S. securities regulators to sell principal-protected notes that guarantee investors the return of either 95 percent or 100 percent of their initial outlay, even if the underlying investment does not pay off.
In December, the Financial Industry Regulatory Authority, the securities
industry's main self-regulatory agency, issued a notice to firms reminding them that any "promotional materials" used to market principal-protected notes must be "fair and balanced" and not overstate the "level of protection."
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