Hybrid Security - Traditional Hybrids

Traditional Hybrids

Traditional hybrids were usually structured in a way that leads the securities to react to the underlying share price. Although each has individual characteristics, typically:

• they have a set dividend until conversion
• the conversion might occur at a number of dates
• they are usually issued at a similar price to the underlying share
• they convert at a set ratio. e.g. 1 hybrid converts into 1 underlying share

Note: This fixed conversion ratio means the price of these hybrids react to the movement in the underlying share price. (The extent of the co-relation is sometimes referred to as a delta, and these typically have a delta of between 0.5 and 1) In addition, some of these securities include minimum and maximum conversion terms, effectively giving the holder a put and call option if the share price reaches a certain prices.