A reverse convertible and a structured note which is linked to the performance of an individual stock or a basket of stocks, so that it (the note) will provide a relatively high current yield along with a limited upside potential.
It is a very risky product- its downside risk is very high while it is not principal-protected. It allows investors to have exposure to equity markets but only up to an extent as the issuer has an embedded put option in return for the coupon payable on the note. The coupon is typically higher than the market yield for non-equity-linked notes.
The issuer has the right to convert the notes into shares as and when they deem necessary and the noteholders have nothing to do about that decision.
This note belongs to the broad category of yield enhancement notes.
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