Structured Note Value Disclosure Examined by Europe Regulators

Regulators in Europe are discussing whether issuers of structured notes should be forced to disclose to investors the value of the securities, which package debt with derivatives.

The European Securities and Markets Authority, set up in 2011 to harmonize regulations for financial markets across the 27-nation European Union, could introduce new rules by 2015, according to Paris-based spokesman David Cliffe.

Structured notes offer customized bets to investors and are under scrutiny from regulators in the U.S. and Europe because of their complexity and lack of transparency. The value of securities is lower than the issue price to account for costs including underwriting fees, hedging costs and expenses to create and market the notes.

“Extra disclosure is always welcomed by investors and this way they can compare the real value of notes,” said Chiara Fornarola, a manager of structured products at Banca IMI SpA, the investment banking unit of Intesa Sanpaolo SpA (ISP), Italy’s second-biggest lender.

Italy’s stock-market regulator, Consob, introduced disclosure rules for its national market in March 2009, requiring intermediaries to explain the fair value of the bond and derivatives components of the securities and the costs associated with them.

Any new European regulations would be included in an update of Europe’s Markets in Financial Instruments Directive, which is being reviewed by EU Financial Services Commissioner Michel Barnier as part of a wider overhaul of the securities industry. Mifid II is expected to come into force in 2015, Cliffe said.

SEC Rules

In the U.S., the Securities and Exchange Commission plans to require banks to disclose the estimated initial value of notes, including how they arrived at prices for the bond and derivatives components, according to a report from securities law firm Morrison & Foerster LLP.

Goldman Sachs Group Inc. (GS), Bank of America Corp. and Royal Bank of Canada started publishing their estimates in prospectuses in anticipation of new rules.

In Europe, any new guidelines for structured notes will be agreed upon between ESMA and the 27 national financial regulators in the EU, and would apply equally across the continent, Cliffe said.

To contact the reporter on this story: Alastair Marsh in London at

To contact the editor responsible for this story: Paul Armstrong at

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