Reverse Convertible Note

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Reverse Convertible Note

A security that combines aspects of a stock and a bond. An RCN operates like a debt security that pays a fixed coupon, which is usually higher than the coupons for regular bonds. At maturity, the holder may choose to receive a certain amount of stock or cash equal to the value of that stock. RCNs allow the investor to diversify his/her portfolio while only incurring the expense of a single investment vehicle.
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The Securities and Exchange Commission said Wednesday UBS Financial Services (UBS) will pay more than $15 million to settle charges that it failed to adequately educate and train advisors about reverse convertible notes, of which some $548 million were sold to over 8,700 "relatively inexperienced" investors.
According to the SEC's order, UBS failed to "develop and implement policies and procedures reasonably designed to educate and train UBS registered representatives in connection with the sale of reverse convertible notes (RCNs) so that they could form a reasonable basis to make suitable recommendations.
HSBC Holdings (LSE: HSBA) has issued reverse convertible notes in two offerings.