Dictionary of Finance and Investment Terms: reverse conversion
reverse conversion
technique whereby brokerage firms earn interest on their customers' stock holdings. A typical reverse conversion would work like this: A brokerage firm sells short the stocks it holds in customers' margin accounts, then invests this money in shortterm money market instruments. To protect against a sharp rise in the markets, the firm hedges its short position by buying call options and selling put options. To unwind the reverse conversion, the firms buys back the stocks, sells the call, and buys the put.
