Regulatory Notice 12-03

Heightened Supervision of Complex Products

Executive Summary

This Notice provides guidance to firms about the supervision of complex products, which may include a security or investment strategy with novel, complicated or intricate derivative-like features, such as structured notes, inverse or leveraged exchange-traded funds, hedge funds and securitized products, such as asset-backed securities. These features may make it difficult for a retail investor to understand the essential characteristics of the product and its risks.

 

The Notice identifies characteristics that may render a product “complex” for purposes of determining whether the product should be subject to heightened supervisory and compliance procedures and provides examples of heightened procedures that may be appropriate.

 

Questions concerning this Notice should be directed to Tom Selman, Executive Vice President, Regulatory Policy, at (202) 728-6977.