Principal Protected Notes (PPN) are not a regulated investment and because provincial securities commissions do not regulate PPNs, the Notes are marketed by financial institutions without the need to provide investors with a Prospectus, unlike regulated securities. Because PPNs operate in a non-prospectus or exempt market, the disclosure requirements are minimal in nature and do not provide investors with a thorough disclosure. With the federal governments Department of Finance’s revised regulation of July 1, 2008 disclosure requirements have improved. These regulatory changes were partially motivated by the shift within the PPN industry into more complex structures offering exposure to more volatile and sophisticated investment themes. With the increasing complexity came the need for greater and greater detailed disclosure for investors.
At a minimum a PPN investor should receive an Information Summary from the selling financial institution, but this summary is not as detailed as a prospectus.
Note: Why PPNs are still not classified as a regulated security and subject to full Prospectus disclosure is another unanswered question.