Royal Bank of Scotland earlier this week launched a five-year structured note for US investors using the words 'principal protected', a term not used since it was questioned by the regulator last year.
The RBS Capped Market-Linked Principal Protected Notes Linked to the S&P500 Index sold $2.5m, according to a filing made with the Securities and Exchange Commission (SEC) yesterday. RBS has also filed this week to offer a second principal protected note linked to the S&P500. This will be the second in the RBS series of Shields branded structured products and is expected to strike 11 May.
The term 'principal protection' has not been used within product titles for US structured products since September of 2010, following a request from SEC officials within the Division of Corporation Finance. In June 2010, it quietly contacted US issuers to ask them to refrain from using the term.
Along with a number of regulators including Singapore, which have banned the use of the term 'principal protected' (or any derivatives of the phrase), the regulator expressed concern over investor confusion surrounding previous sales of Lehman Brothers principal protected notes.
Although structured notes issued in the US have continued to provide full or partial principal protection, issuers have refrained from using that nomenclature in product monikers, instead opting to explain any form of capital protection at maturity by way of a product's description and payout scenarios.
Executives at RBS were not able to be reached for comment as to why the new notes have reverted to the phrase.
"The SEC has been working with market participants to address this question," an SEC spokeswoman told SRP, adding that the regulator could not comment on any particular filing.