Convertible security

A security that can be converted into common stock at the option of the security holder, including convertible bonds and convertible preferred stock.

Similar financial terms

Convertible bond
An issue giving the bondholder the right to exchange the bond for a specified number of shares of common stock. This feature allows the bondholder to take advantage of favourable movements in the price of the issuer’s common stock.

Zero-coupon convertible
A zero-coupon bond convertible into the common stock of the issuing company after the stock reaches a certain price, using a put option inherent in the security. It might as well refer to zero-coupon bonds, which are convertible into an interest bearing bond at a certain time before maturity.

Convertible preferred stock
Stock that can be converted to common stock if the investor wishes, at a set price per share or by a specified deadline.

Convertible securities
Bond or preferred stock that can be converted to common stock if the investor so chooses.

Convertible price
The contractually specified price per share at which a convertible security can be converted into shares of common stock.

Convertible bonds
Bonds that can be converted into common stock at the option of the holder.

Convertible eurobond
A eurobond that can be converted into another asset, often through exercise of attached warrants.

Convertible exchangeable preferred stock
Convertible preferred stock that may be exchanged, at the issuer's option, into convertible bonds that have the same conversion features as the convertible preferred stock.

Death Spiral Convertible
Used by companies that are in such bad shape, that there is no other way to get financing. This instrument is similar to a convertible bond, but convertible at a discount to the share price at issuance and for a fixed dollar amount rather than a specific number of shares. The further the stock falls, the more shares you get. Popular in the mid to late 1990s. Also known as toxic convertibles or floorless convertibles.

Variable price security
A security, such as stocks or bonds, that sells at a fluctuating, market-determined price.

Underlying security
For options it is the security subject to being purchased or sold upon exercise of an option contract. For example, Deutsche Bank stock is the underlying security to Deutsche Bank options.

For depository receipts it is the class, series and number of the foreign shares represented by the depository receipt.

Security selection decision
Choosing the particular securities to include in a portfolio.

Security market plane
A plane that shows the equilibrium between expected return and the beta coefficient of more than one factor.

Security market line
Line representing the relationship between expected return and market risk.

Security deposit (initial)
Synonymous with the term margin. A cash amount of funds that must be deposited with the broker for each contract as a guarantee of fulfillment of the futures contract. It is not considered as part payment or purchase.

Security characteristic line
A plot of the excess return on a security over the risk-free rate as a function of the excess return on the market.

Piece of paper that proves ownership of stocks, bonds and other investments.

Primitive security
An instrument such as a stock or bond for which payments depend only on the financial status of the issuer.

Mortgage pass-through security
Also called a passthrough, a security created when one or more mortgage holders form a collection (pool) of mortgages sells shares or participation certificates in the pool. The cash flow from the collateral pool is "passed through" to the security holder as monthly payments of principal, interest, and prepayments. This is the predominant type of MBS traded in the secondary market.

Monthly income preferred security (MIP)
Preferred stock issued by a subsidiary located in a tax haven. The subsidiary relends the money to the parent.

Cabinet security
A stock or bond listed on a major exchange with low daily traded volume.

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Reference rate

A benchmark 'interest rate (such as LIBOR), used to specify conditions of an interest rate swap or an interest rate agreement.

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