Regulatory Notice 10-09

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

Executive Summary

Reverse exchangeable securities, commonly called "reverse convertibles," are popular structured products with retail investors, due in large part to the high yields they offer. However, reverse convertibles are complex investments that often involve terms, features and risks that can be difficult for retail investors and registered representatives to evaluate. Firms that sell reverse convertibles are reminded to ensure that their promotional materials or communications to the public regarding these products are fair and balanced, and do not understate the risks associated with them. Firms are also reminded to ensure that their registered representatives understand the risks, terms and costs associated with these products, and that they perform an adequate suitability analysis before recommending them to any customer.

 

General questions concerning this Notice should be directed to:

 

• Laura Gansler, Associate Vice President, Emerging Regulatory Issues, at (202) 728-8275; or
• Donald Lopezi, Director, Examination Programs, at (202) 728-8132.

 

Questions relating to communications with the public should be directed to Amy C. Sochard, Director, Programs & Investigations, Advertising Regulation, at (240) 386-4508.