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  Stock Bonds at the Stock Exchange | Special Edition | Bit Updates
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Stock Bonds at the Stock Exchange | Special Edition

Saturday, March 10th, 2018 | bitcoin updates

Reversebonds may be purchased either directly at the time of issue or at any time thereafter via the stock exchange. If the reverse convertible bond is purchased directly at issue, the investor pays the full face value. This is usually € 1,000 per share. It is different if the reverse convertible bond is only to be acquired on the stock exchange after the issue. When buying the reverse convertible bond on the stock exchange, the price of the bond is relevant. Like normal bonds, reverse convertible bonds are listed as a percentage of the nominal amount. 100.00 percent corresponds exactly to the nominal amount, 99.00 percent with a nominal value of 1,000 euros an amount of 990 euros.

If the reverse convertible is to be held after the date of purchase on the stock market, investors should make sure that the price of the bond is just under or around 100 percent. If the price is well above 100 percent, this reduces the return, since a maximum of 100 percent is paid on the due date. If the price is well below 100 percent and the maturity date is no longer too far away, it is likely that the reverse convertible will be redeemed by delivery of the underlying asset.

During the trading session, the issuer of the reverse convertible usually as a market maker continuously provides for supply and demand and ensures sufficient liquidity so that reverse convertible bonds can be traded on the stock exchange at any time.

However, many issuers also offer the possibility of OTC direct trading. In this case, the investor approaches the issuer and asks him for a price quote for the desired reverse convertible bond. The Issuer answers this request by sending the current bid and ask price. Now the investor can decide whether to accept this offer and buy or sell at the appropriate price. If he accepts, he makes a trade request to the issuer. If the price of the reverse convertible bond has not changed between the quote request and the trade request, the issuer will accept the trade request and the trade is thus concluded. In the meantime, if a price change has occurred, the issuer will reject it and the process can be restarted with a new price request. This principle is also called invitatio ad offerendum.

Source: Olivier Le Moal / Shutterstock.com, MaximP / Shutterstock.com


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