In this issue: Repackaging; Fiduciary Duty: An Update; IFLR Derivatives and Structured Products Conference; and FINRA Rule 5122 Revisions May Affect Certain Structured Products.

Excerpt from 'Repackaging':

We are often asked to consider whether “bundling” certificates of deposit (CDs) and offering interests in these CDs would be considered a new instrument and whether the FDIC insurance would still be passed along to investors purchasing the interests. Generally, brokered CDs purchased by a financial intermediary and held by a trustee, on behalf of investors, will be bank deposits and not securities.1 However, does the sale of interests in a CD or the bundling of CDs create a different result?

The starting point for this analysis is the Staff’s position in a no-action letter to E.F. Hutton & Co., Inc. (pub. avail. Mar. 28, 1985). In the E.F. Hutton letter, the Staff indicated that no enforcement action would be recommended if E.F. Hutton offered and sold units in an irrevocable trust holding a single, non-negotiable, jumbo CD without registration under the Securities Act and without registration of the trust as an investment company. In granting this relief, the Staff noted that (1) each owner of a unit of the trust would be recognized by the financial institution as a beneficial owner of the CD, and would have the right to proceed directly against the financial institution and the trustee; (2) the CD would be selected prior to the sale of units and identified in the offering material for the units; (3) the trustee would perform only ministerial functions related to collections from the financial institution and disbursements to the owners of the trust units; and (4) the interest of each trust unit owner in the CD would be federally insured through both the trustee and the financial institution.