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Home > Blog > Monthly Archives: November 2018

Monthly Archives: November 2018

Will Technology-Related Structured Notes Fleece Retail Investors?

On November 27, 2018, in an article published on Bloomberg (“Wall Street’s FANG Notes for Mom and Pop Buckle on Tech Pain”), it was noted that main street investors who have purchased FANG or other technology related structured notes face a stark reality check.

“FANG” is the acronym for four technology stocks – Facebook (NASDAQ: FB), Amazon (NASDAQ: AMZN), Netflix (NASDAQ: NFLX) and Google (NASDAQ: GOOGL) which is now known as Alphabet.

With banks selling $2 billion of structured products linked to one or more of the now-struggling FANG members this year alone, investors are getting schooled on the risks lurking in complex debt securities — even those laden with supposed protective buffers. Investors have already missed out on coupon payments and, unless the U.S. equity markets significantly reverse course, investors face haircuts and more lost income.

Among the hardest hit of the technology-related securities are those structured securities that are tied to Nvidia Corp. (NASDAQ: NVDA), with $221 million linked to the chipmaker having been sold globally this year alone. The timing couldn’t be worse: the stock is down significantly since last month after having posted disappointing forecasts. Nvidia’s trading below the threshold required to receive the touted 11 percent coupon return per year.

Another example is Citigroup having sold $7.34 million of structured notes tied to Netflix in June when the shares were rocketing toward an all-time high. The six-month securities pay an annualized coupon of 13.75 percent as long as the streaming service remains above $308.32. With the stock trading significantly below the $308.32 price, investors would have received no coupon this month and risk losing a significant portion of their principal when the notes mature on Dec. 28 unless Netflix stages a rally to the tune of 10 percent by the maturity date.

If you are an individual or institutional investor who has any concerns about your technology investments with any brokerage firm, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

Technology Stocks – is the Handwriting on the Wall for Significant Losses?

On November 20, 2018, an article in the New York Times (“The Tech Stock Fall Lost These 5 Companies $800 Billion in Market Value”) noted that “Wall Street’s turn against big tech is adding up” and that “as investors have dumped shares of Facebook, Amazon, Apple, Netflix, and Google-parent Alphabet, $822 billion in value has been wiped off their combined market value since the end of August.”

This article further noted that “based on the losses from each company’s high point in recent months, more than $1 trillion in value has been erased. Facebook, Apple and Amazon have endured the greatest declines, all down $250 billion or more from their respective peaks.”

In fact, “by the end of August, the market value of Apple and Amazon had each surpassed $1 trillion, and Alphabet was flirting with $900 billion. The combined market value of the five had reached $3.6 trillion.”

Clearly, “worries about global economic growth as well as lackluster earnings and outlooks the past two quarters have shaken investors’ confidence” in these stocks and “has investors questioning whether the values of these big tech companies have become too lofty.”

“Of course, Facebook, Amazon, Apple, Netflix, and Alphabet have faced steep sell-offs before, only to bounce back quickly. Just this year, the combined market value of those five companies has tumbled 7 percent or more during three separate periods. In each instance, the stocks resumed their march to fresh highs within weeks.”

Whether this time will be different – especially for those investors who have purchased these stocks on margin or have purchased other securities that are tied to the performance of these technology shares – is clearly the question of the day.

If you are an individual or institutional investor who has any concerns about your technology investments or margin account with any brokerage firm, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).

Recent Market Volatility Exposes the Significant Dangers Associated with Margin Accounts

In an Investor Alert that was issued on November 8, 2018 (“Know What Triggers a Margin Call”), the Financial Industry Regulatory Authority (“FINRA”) warned investors that “volatility is back, and market swings can sometimes bring an uncomfortable surprise to investors – a margin call.”

When an investor purchases stock on margin, the investor’s brokerage firm is lending the investor cash, using assets in the investor’s account as collateral, which is then used to purchase securities.

In order to trade on margin, an investor must have a margin account with his or her brokerage firm. As noted by FINRA, “there is a difference between a margin account and a cash account. In a cash account, all transactions must be made with available cash, while a margin account allows you to borrow against the value of the assets in your account to purchase securities.”

While using margin increases an investor’s purchasing power, FINRA notes that “there’s a flip side to buying with borrowed funds. Not only do you pay interest on the money you borrow, but buying on margin leaves you open to the potential for larger losses. In fact, you can even lose more money than you invested.”

If the securities an investor is using as collateral go down in price, the brokerage firm can issue a margin call. This is a demand that you repay all or part of the loan with cash, a deposit of securities from outside your account, or by selling securities in your account.

If an investor fails to make the required deposit, and the firm does not grant an extension to do so, the firm is required to liquidate the shares that were purchased on margin, or can liquidate other assets that were put up with the firm as collateral.

And FINRA notes an important reality check: a firm is not required to notify an investor of the sale, though most do so as a courtesy, nor does the firm let the investor choose which securities or assets are sold to meet a margin call.

With the recent volatility in many sectors of the market – especially in many technology and energy-related individual stocks – investors’ portfolios have been exposed to the potential danger that can be associated with a margin account. In fact, as of month-end September 2018, the amount of margin debit balances in customer accounts exceeded the monthly margin debit balances that were reported for each month in calendar year 2017.

Clearly a margin account and the attendant dangers associated with the same are not appropriate for every investor – especially for those who do not understand or want to assume the unlimited risks that are associated with them in an extremely volatile environment.

If you are an individual or institutional investor who has any concerns about your investments or margin account with any brokerage firm, please contact us for a no-cost and no-obligation evaluation of your specific facts and circumstances. You may have a viable claim for recovery of your investment losses by filing an individual securities arbitration claim with the Financial Industry Regulatory Authority (FINRA).


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