Showing posts with label SEC. Show all posts
Showing posts with label SEC. Show all posts

Thursday, August 14, 2008

Auction Rate Securities

Via the FT, more settlements in the Auction Rate Securities blow up:
Regulators have accused banks of misrepresenting ARS as liquid, cash-like instruments. The collapse of the $330bn market in February highlighted the risk in the long-term securities, whose interest rates are periodically reset at auctions.

The gist: Investors are stuck with a product which was sold to them as a money-market with a better yield, but for which there is now no market which they can use to exit.

One story: Via Bloomberg:
"When I bought these I wanted a safe security and I was told they were redeemable at par," said Stokes. "Then when the market failed and I wanted a secondary market to trade out, I was told that Wachovia doesn't make a secondary market."

The upshot: Here is the SEC description of the settlement with Citi. Note that one of the terms prevents the bank from liquidating its own positions before its clients'.