Reverse Convertible Note - RCN

A synthetic instrument that shares characteristics with both bonds and stocks. A reverse convertible note (RCN) typically provides high coupon payments and final payoffs that depend on the performance of an underlying stock.

RCNs have a face value that matures as shares or cash (this is up to the issuer), and a fixed coupon rate based on bonds. This allows investors to optimize the diversification of their portfolios without necessarily buying both stocks and bonds. RCNs typically have high commission fees, and are considered by some money managers to be highly risky and even toxic assets.