Structured Products & ETNs

Definition

A structured product is a customized investment vehicle created by financial firms for specific types of clients.

It typically combines two pieces into a single investment:

🔑 The two components

Component	Typically is	Purpose in the example below
A debt component	often a bond	Provides the principal protection the investor is looking for
A derivative component	often an option	Provides the market-linked upside

These investments can be complex and highly tailored.

Worked example (verbatim)

Let’s assume an investor wants to invest $100,000 and earn the returns of the S&P 500 over a 5-year period, while also protecting against a bear market. A financial firm could create a structured product with these two components:

$80,000 zero coupon bond ($100,000 par value)

$20,000 S&P 500 index call

Piece	Amount	Detail
Zero coupon bond	$80,000	$100,000 par value; matures at $100,000 at the end of five years
S&P 500 index call	$20,000	Bullish on the index
Total invested	$100,000	Over a 5-year period

The zero coupon bond component provides the principal protection the investor is looking for. As long as the bond’s issuer (usually the financial company creating the structured product) does not default*, the bond will mature at $100,000 at the end of five years. Even if the S&P 500 index call expires worthless, the investor still receives $100,000 at maturity.

*Because default is possible, structured product investors must be comfortable with credit risk.

The S&P 500 index call is bullish on the index. If the S&P 500 rises, the option gains value, and the investor receives those gains in addition to the $100,000 principal from the zero coupon bond. If the S&P 500 declines, the option may expire worthless, producing no additional return.

Outcome table

S&P 500 outcome	Option result	Investor receives
S&P 500 rises	Option gains value	Those gains in addition to the $100,000 principal from the zero coupon bond
S&P 500 declines	Option may expire worthless	$100,000 at maturity, no additional return

General characteristics and risks

This is just one way to build a structured product. In general, any combination of two or more financial instruments packaged into a new customized investment can be considered a structured product.

⚠️ Liquidity risk

Because these products are customized, there’s typically no public secondary market for them. As a result, most structured products involve significant liquidity risk.

⚠️ Credit risk

Because default is possible, structured product investors must be comfortable with credit risk.

⚠️ The one exception: Exchange traded notes (ETNs)

There’s one primary exception to keep in mind. Exchange traded notes (ETNs) are technically structured products, but they trade on stock exchanges. When a financial instrument trades on an exchange, liquidity risk is generally very low. ETNs are one of the only structured products that can typically be assumed to have little-to-no marketability problems.

Structured product	Trades on an exchange?	Liquidity risk
Most structured products	No public secondary market	Significant liquidity risk
Exchange traded notes (ETNs)	Yes — trade on stock exchanges	Generally very low; little-to-no marketability problems

Key points

Structured products

Customized financial products
Typically involve a derivative and debt component
Subject to credit and liquidity risk
ETNs only type of structured product not subject to liquidity risk

Sources

Primary/official references for the material in this chapter. Every link was fetched and returned HTTP 200 on 2026-08-15.

#	Source	Publisher
1	Structured notes — payoff linkage, issuer credit risk	SEC / Investor.gov
2	Structured notes with principal protection	SEC / Investor.gov
3	Rule 2111 — suitability, reasonable-basis/customer-specific/quantitative	FINRA
4	Achievable Series 65 — chapter 1.5.3	Achievable (course text)

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