TAG | knock-in notes
Reverse convertibles notes (RCNs), sometimes referred to as “reverse convertibles,” “reverse converts,” “knock-in notes,” or “revcons,” are short-term, unsecured bonds that are issued by banks and financial institutions. These notes are often linked to the performance of a well-known stock and may pay double-digit yields. Once the notes mature, investors should get their full principal investment back. However, if the value of the underlying stock falls to a certain point, sometimes referred to as the “knock-in” or “barrier” level, investors get shares of the devalued stock in lieu of their full principal investment.
The more the price goes down, the more money the issuer can make. They will “swap” your note at some point, for shares of stock, worth far less than the principal value of the note. That is why the interest rate you receive, at times as much as 18%, is the enticement to get you to buy the notes. There may be some unscrupulous brokers who really want you to buy their reverse convertible notes because they allegedly believe the underlying stock will go down. The brokers should almost never consider individuals who wish to take below average, average or even above average risks with their investment dollars for RCNs. They should never be considered appropriate for retirees or other income oriented investors. Don’t let the high yields entice you.
It has been reported that some brokerage firms may have been allegedly charging fees on reverse convertible notes that equal or exceed the securities’ highest possible yield. There are also many undisclosed costs, making it very difficult for the typical individual retail investor to determine whether the reverse convertible represents a good investment. The Financial Industry Regulatory Authority or FINRA, has recently made sales of reverse convertibles one of its priorities for the examination and enforcement divisions.
Have you or a family member been a victim of the sale of risky Reverse Convertible Notes or RCNs by your broker or brokerage? If so call a Securities Arbitration Lawyer for a free consultation on how to recover your losses. To speak with an attorney, call 888-760-6552, or visit www.stockmarketlawsuit.com. Soreide Law Group, PLLC., representing investors nationwide before FINRA the Financial Industry Regulatory Authority.
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