ITU’s first shifts result in FINRA fine – Finance and Banking

0

United States: First ITU overturns result in FINRA fine

To print this article, simply register or connect to Mondaq.com.

In recent years, structured products have emerged in a new form – a mutual fund envelope (“ITU”). These UITs, as opposed to typical UITs with a basket of common stocks as trust assets, have structured note payments, with features such as buffers, leverage, and caps. Structured ITUs have the same pricing structure as typical ITUs: up-front selling costs, deferred selling costs, and creation and development costs.

Recently, a broker was fined $ 8.4 million by the Financial Industry Regulatory Authority, Inc. (“FINRA”) for failing to oversee early unstructured ITU renewals.1 This happens when an investor in an existing ITU sells its position before maturity and buys in another ITU, often with the same or similar assets in the trust. The effect of this rollover on the investor is that the investor will pay increased sales charges over time. The broker had a system in place to report renewals for ITUs that took place seven months or less, but did not report renewals after seven months. Most UITs have a maturity of 15 to 24 months and are treated as long-term investments, to be held until maturity.

Broker-traders should ensure that ITU’s rolling functionality is not abused, whether in relation to unstructured ITUs, as in this case, or structured ITUs.


Originally published in REVERSEinquiries: Volume 4, Issue 4.
Click here to read the articles in this latest edition.

Footnote

1. The FINRA press release and the letter of acceptance, waiver and consent can be viewed at: FINRA Order for $ 8.4 Million in Restitution to Customers for Supervisory Failures Involving UITs

Visit us on mayerbrown.com

Mayer Brown is a global provider of legal services comprising law firms that are separate entities (the “Mayer Brown Practices”). The Mayer Brown Firms are: Mayer Brown LLP and Mayer Brown Europe – Brussels LLP, two limited liability companies established in Illinois in the United States; Mayer Brown International LLP, a limited liability company incorporated in England and Wales (authorized and regulated by the Solicitors Regulation Authority and registered in England and Wales under number OC 303359); Mayer Brown, a SELAS established in France; Mayer Brown JSM, a partnership of Hong Kong and its associated entities in Asia; and Tauil & Checker Advogados, a Brazilian law partnership in which Mayer Brown is associated. “Mayer Brown” and the Mayer Brown logo are registered trademarks of Mayer Brown Practices in their respective jurisdictions.

© Copyright 2020. The Mayer Brown Practices. All rights reserved.

This article by Mayer Brown provides information and commentary on legal issues and developments of interest. The foregoing does not constitute a complete treatment of the matter at hand and is not intended to provide legal advice. Readers should seek specific legal advice before taking any action on the matters discussed in this document.

POPULAR ARTICLES ON: United States Finance and Banking

Biden signs law overturning real lender rule

Cooley LLP

On June 30, 2021, President Joe Biden signed a joint resolution to revoke the Office of the Comptroller of the Currency’s (OCC) “real lender” rule (the “rule”). Passed in October 2020.

LIBOR Transition: BSBY Out Of The Gates First

Duane Morris LLP

With all the regulator and market focus on SOFR as the replacement of choice for LIBOR, it’s easy to forget that there are other replacement rates vying for market attention.

Comparative guide to banking regulations

Linklaters

Comparative guide to banking regulation for United States jurisdiction, see our comparison guides section to compare multiple countries

Share.

About Author

Shanta Harris

Leave A Reply