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Traffic grooming in wavelength division multiplexing (WDM) optical networks refers to routing and aggregating low-rate client traffic onto wavelength granularity lightpaths. When client traffic randomly arrives/departs, it is called dynamic traffic grooming. This paper focuses on dynamic traffic grooming when the optical network has sparse wavelength conversion, and aims to examine the impact of wavelength conversion and converter placement on dynamic traffic grooming. We have developed both an analytical model for performance evaluation, and an adaptive traffic load-based (ATL) heuristic algorithm for converter placement, accompanied with a discussion of various converter placement heuristics. Numerical results indicate that the ATL heuristic can obtain similar performance as the greedy heuristic with lower computation complexity.