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FINRA Regulatory Notice: Reverse Convertibles

FINRA Reminds Firms of Their Sales Practice Obligations With Reverse Exchangeable Securities (Reverse Convertibles)

The Financial Industry Regulatory Authority (FINRA) published Regulatory Notice 10-09 reminding financial firms selling reverse convertibles notes (RCN) to provide fair and balanced sales materials and communications, including proper statement on the risks associated with such notes.

In an upcoming SLCG study on RCN, we have found that investors of RCNs have been overcharged by brokerage firms. The extent of the overcharge is so great that the expected return of RCNs is negative. Since sales of RCNs have continued to grow, it is evident that investors are not aware of the costs of such a complex investment.

SLCG also provides to the public free valuation tools for certain structured products such as principal protected notes and leveraged index-linked notes.