Complex debt instrument, usually a medium-term note, in which the issuer enters into one or more swap arrangements to change the cash flows it is required to make. A simple form utilizing interest rate swaps might be, for example, a three-year floating rate note paying the London Interbank Offered Rate (LIBOR) plus a premium semiannually. The issuer arranges a swap transaction whereby it agrees to pay a fixed semiannual rate for three years in exchange for the LIBOR. Since the floating rate payments (cash flows) offset each other, the issuer has synthetically created a fixed rate note. (Barron’s) Structured notes are primarily issued by Government-Sponsored Entities (GSEs), such as the Federal Home Loan Bank (FHLB), Federal National Mortgage Association (FNMA), Student Loan Marketing Association(SLMA), and Federal Home Loan Mortgage Corporation (FHLMC), amongst others. The securities carry an implicit government guarantee and are rated triple-A. Many large corporations, and finance companies, generally rated single-A or better, also issue structured notes. Most structured-note issuances originate with investors on a reverse inquiry basis, through the medium-term note (MTN) market. The process originates when an investor has a demand for a security with specific risk characteristics. Through a reverse inquiry, an investor will use MTN agents such as the underwriting desk of an investment bank or section 20 subsidiary of a bank to communicate its desires to the issuer. If the issuer agrees to the inquiry, the issuer will issue the security which is sold through the MTN agent to the investor. Although structured notes in the MTN market often originate with the investor, investment banks and section 20 subsidiaries of banks also put together such transactions. When an opportunity is identified, the investment bank or section 20 subsidiary will inform investors and propose that they buy the structured notes. If an investor tentatively agrees to purchase the securities, the MTN agents in the investment bank or section 20 subsidiary will contact an issuer with the proposed transaction. If the structure meets the funding needs of the issuer, the structured notes will be issued to the investors. Structured notes issued by GSEs are type I securities and there is no limitation on the amount which a bank can purchase or sell. Structured notes issued by investment-grade rated corporations are type III securities. A bank’s purchases and sales of type III securities are limited to 10 percent of its capital and surplus. (Federal Reserve-Trading and Capital-Markets Activities Manual)