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Investment Banks, Hedge Funds, and Private Equity by David Stowell

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9

Convertible Securities and Wall Street Innovation

Convertible Securities

Most convertibles1 are underwritten by large investment banks on a best-efforts basis. This means that the issuer bears share price risk during the period of time when the security is being marketed to prospective investors. In the United States, convertibles are typically sold based on a 144A exemption from registration with the SEC. These securities, if held for 180 days (and assuming the issuer is current in their required SEC filings), can be freely sold, as can the underlying common shares, without the need for a registration statement.

Hedge Funds and Delta Hedging

The principal investors in most convertible securities are hedge funds that engage in convertible arbitrage ...

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