One of the challenges of regulating complex products is that there’s no agreed-upon definition for them. “Because new products and strategies are constantly introduced, Finra has construed the term ‘complex product’ flexibly to avoid a static definition that may not address the evolution of financial products and technology,” the Financial Industry Regulatory Authority Inc. said in a regulatory notice earlier this year.
Here’s a list of investments that are generally thought to be complex, with definitions from Investopedia:
An inverse ETF is an exchange-traded fund constructed by using various derivatives to profit from a decline in the value of an underlying benchmark.
A leveraged ETF seeks to return some multiples (e.g., 2× or 3×) on the return of the underlying investments by using derivatives such as options or futures contracts to leverage their returns.
Nontraded REITs are not listed on public exchanges and can provide retail investors access to inaccessible real estate investments with tax benefits.
Structured investment products, or SIPs, are types of investments that meet specific investor needs with a customized product mix and typically include the use of derivatives.
An interval fund is a nontraditional type of closed-end mutual fund that periodically offers to buy back a percentage of shares outstanding from shareholders. Shareholders are not, however, often required to sell their shares back to the fund.
Options are financial derivatives that give buyers the right, but not the obligation, to buy or sell an underlying asset at an agreed-upon price and date. Call options and put options form the basis for a wide range of option strategies designed for hedging, income, or speculation.
A variable annuity is a type of annuity contract, the value of which can vary based on the performance of an underlying portfolio of subaccounts.
A business development company (BDC) is a type of closed-end fund that makes investments in developing and financially distressed firms, typically using heavy leverage.
A private placement is a sale of stock shares or bonds to preselected investors and institutions rather than publicly on the open market. They are relatively unregulated compared to sales of securities in the public market.
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