Business and Personal Finance Dictionary

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• MANDATORY CONVERTIBLE SECURITIES
  
  Types of convertible bonds that have required conversion or redemption features. One type of mandatory convertible requires the holder to exchange the bonds for common stock at maturity. Often used by banks seeking to meet regulatory capital requirements without issuing common stock until a later date. Often called equity-linked securities. These securities provide investors with higher yields to compensate holders for the mandatory conversion structure. They also typically have caps on the amount of upside potential that the security can achieve. For moderate stock increases, they will outperform the common stock due to the yield advantage, but the cap on the upside means that they lag stock performance for high stock returns.
  
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