FINRA Provides a Reverse Convertibles Reminder

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In response to controversial sales practices relating to reverse exchangeable securities (“reverse convertibles”), FINRA recently issued two documents — a Regulatory Notice1 and an Investor Alert2 — on reverse convertibles. Among other issues, the documents address potentially abusive sales tactics relating to sales of reverse convertibles, such as emphasizing high interest rates and deemphasizing the lack of principal protection.3 The key takeaway is that reverse convertibles are complex instruments and, given the potential for investor confusion, brokers should ensure that they offer the notes only to appropriate investors and that they supply those investors with adequate disclosure.

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Morrison & Foerster LLP on:

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