The simplest or standard or basic form of an asset/ financial instrument/ investment/ security/ structure. Examples include plain vanilla bonds, plain vanilla options, plain vanilla swaps, plain vanilla convertible debt, etc.
For example, a plain vanilla convertible debt is a convertible debt structure that has standard characteristics that make it the basic (plain vanilla) form amongst other structures. These characteristics include the debt being senior unsecured, while it is associated with no financial covenants. Other key features are a cash coupon below otherwise similar maturity non-convertible debt, a conversion price set at a premium to market (an option to buy-up premium by means of a call spread or capped calls), and a flexible settlement upon conversion (cash or shares) to minimize dilution.
Plain vanilla describes anything that comes with, or bears, no extra features (frills, add-ons), and also implies more generalized financial concepts or principles or approaches, such as trading strategies, accounting treatment, theoretical basis, etc.
