Automatic Conversion

Term Main definition
Automatic Conversion

A kind of conversion of a security that is mandatory and takes place without the holder of the security providing a voluntary conversion notice to the security issuer, which is only the case in an optional conversion.

A "convertible security" is characterized as such because it provides for this security to be converted into another security, which in most cases is the common stock of the issuer. Automatic conversion only applies in connection with a convertible security if the terms of that convertible security expressly include a provision for automatic conversion to take place if specified conditions or events occur.  Automatic conversion is not a feature of all convertible securities. Optional conversion is almost always seen in any convertible security while mandatory conversion is a less often seen characteristic.  An automatic conversion feature of a convertible security would cause a conversion of the "convertible security" to occur.  When express conditions of automatic conversion shall have been met., the convertible security would automatically and mandatorily convert, usually into shares of common stock.  The conversion happens automatically in the sense that conversion is triggered without any action on the part of the holder or the issuer of the convertible security.  See also Convertible Preferred Stock.