Finra Examines CDs Tied to Derivatives as Sales Surge to Record

The Financial Industry Regulatory Authority is examining sales of certificates of deposit tied to derivatives after banks sold a record number of the investments last year.

The industry-backed regulator wants to make sure the so-called structured CDs, where principal is protected by the Federal Deposit Insurance Corp., are properly understood by investors given their increasing complexity and lengthening maturities, said Maria Rabinovich, a lawyer in Finra’s risk division. Rabinovich, who spoke yesterday after a session on structured product law and regulation at Morrison & Foerster LLP’s office in New York, declined to comment further.

The watchdog issued an alert on “complex products” in January, without referring to the CDs. The notice avoided defining what constitutes such products, while outlining a few examples, such as those where information is not readily available about the assets they’re tied to, and so-called “steepeners,” which typically bet on the shape of the Treasury yield curve.

Demand for derivative-linked certificates of deposit has risen as the Federal Reserve holds interest rates below 0.25 percent for the third straight year. Yields on five-year, fixed-rate CDs have declined to 1.55 percent, the lowest level since at least June 1998, according to data from

Banks sold a record 1,271 of the investments in the U.S. last year, according to, a database used by the industry. Statistics on total volume are incomplete because banks aren’t required to register issuance with the Securities and Exchange Commission, and the FDIC doesn’t track the products separately.

24% Annually

Goldman Sachs Group Inc. offered a four-year CD linked to the monthly returns of the Dow Jones Industrial average in December that returns as much as 24 percent a year. The Dow would have to gain at least 2 percent each month over the CD’s life for the maximum payout, according to an offering statement. Investors are guaranteed an annual yield of 0.5 percent, an amount less than the average 0.77 percent rate paid by one-year certificates of deposits, according to

Derivatives are contracts whose value is derived from stocks, bonds, currencies and commodities.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE