FINRA issues investor insight on non-traditional indices

In August 2025, FINRA published an article addressed to investors relating to "non-traditional" indices.  The article may be found on FINRA's website, here.  FINRA's article is designed to focus investors on key considerations and risks that apply to the structured products, investment funds and other instruments that track these indices.

Of course, the term "non-traditional" is not a precise legal term, and can mean different things to different market participants¹.   FINRA describes these indices as tracking, for example, "risk tolerance or exposure to specific investment themes."  The category includes indices sponsored by major market-leading index providers and a wide variety of propriety indices, including many that involve quantitative investment strategies².   FINRA points out that these investments can use more complex or targeted strategies than traditional indexes.

Of course, many issuers of structured notes and structured CDs issue products that are linked to these types of indices, or that are linked to the ETFs that track them.  These offerings may be effected as part of an issuer's broadly-marketed calendar offerings, or on a reverse inquiry basis.  They are frequently offered to enable investors to track a particular strategy or investment outlook.

The article points out a number of risks relating to these products.  Most of these risks are fairly well known to the market participants that create the offering documents for these products.  These risks include:

• the risk of underperformance as compared to the broader market;
• the possibility of limited historical performance information about the index;
• the possibility that the index components will be concentrated among a limited number of securities; and
• the possibility that the index methodology may be more complex than a particular investor can follow, and that it may be difficult for an investor to evaluate the index's potential performance in different economic scenarios.

In a nutshell, FINRA's article is intended to remind investors of the key considerations that relate to these products.  For issuers and underwriters, the article is a useful reminder of how to think about the disclosures for these products, and the types of investors to whom they should be offered.