Reverse convertibles: the disclosure debate

Reverse convertible securities in the US have been the subject of both harsh criticism and subsequently intense regulatory scrutiny. The stock market gyrations of late 2008 into 2009 caused the majority of reverse convertible securities to knock out, setting off a firestorm that singed retail investors’ portfolios and set off regulators’ smoke alarms. Could enhanced reverse convertible disclosure reverse the damage? Lori Pizzani reports

How to get the right balance of quantity and quality of disclosure?

Reverse convertible securities have been the most prolifically issued structured note in the US in the past few years. High-net-worth investors with a bullish viewpoint on a stock can reach out to potential issuers through the reverse inquiry process and choose the structured note linked to an underlying of choice. Moreover, mainstream retail investors have been flocking to reverse convertibles, drawn in by the high coupons being offered on well-known names.

But cases have come to light of mis