Electronic Structured Product Systems and FINRA’s Robo-Advisor Report -

In a prior issue of this publication, we wrote about electronic structured note issuance platforms, and how these might be affected by U.S. securities regulations. FINRA’s March 2016 report2 on “robo-advisors” provides a framework for considering the effect of its rules and regulations on possible platforms of this type.

An electronic structured notes issuance platform may be created for a variety of purposes. For example, it could be used to show investors a broker’s current new offerings, or to show securities available for sale in the secondary market, providing (or not providing) an opportunity to place a purchase order. Some have envisioned a system in which an investor could “design” a structured note, for example, selecting from certain pre-established selections different potential reference assets, and different parameters for buffers, caps, participation rates, maturities and other terms. Some market participants have proposed systems in which structured products would be a tool used in an electronically created portfolio. In each case, such a system could conceivably be accessed directly by investors or used as a tool by financial advisors.