Posts Tagged ‘auction rate securities’

FINRA, Fess Up

FINRA, Fess Up

Interview with Larry Doyle at Sense on Cents, by Ilene 

Here’s the hypocrisy of the Financial Industry Regulatory Authority* (FINRA); it dumped a portfolio of Auction Rate Securities* (ARS) before the ARS market froze up in early 2008. People are asking legitimate questions and FINRA is refusing to answer. When FINRA wants its questions answered, it knows how to get the answers through its subpoena power. Why won’t FINRA fess up and be transparent about its dealings in the ARS market?

I recently caught up with my friend Larry Doyle and asked him whether there had been any progress in uncovering the events behind FINRA’s timely liquidation of its ARSs in 2007 since our last conversation. Here’s a transcript of our conversation about FINRA and FINRA’s ARS sales. Larry touches on a number of important topics including transparency, the incestuous relationship between Wall Street and Washington, the absurdity of self-regulation and twisted logic of granting a quasi-government entity government-style immunity, while allowing it to be free from the reach of the Freedom of Information Act.  

FINRA’s Timely Auction-Rate Securites (ARS) Sales

Before we continue, please read my previous interview with Larry Doyle here. Excerpt: 

"The ARS market operated smoothly until the credit markets seized up.  First signs of trouble emerged in 2007 when the spreads started to blow out (widen significantly). Spreads widened because dealers realized the true nature of the risks and backed away from supporting the market. Selling intensified as investors were trying to get out in the late spring and summer of 2007.  Investors stopped buying, though the dealers maintained an intermediary market for a while.  Finally, sellers so overwhelmed buyers that Wall Street had to stop serving as an intermediary.  This developed over a period of months, but was not shared with the clients.  Wall Street was trying to lay these ARSs out on investors.  When the market collapsed in February 2008, the “cash equivalency” disappeared."

[...]

Going into 2007, FINRA had $647 million dollars of ARSs.  It was holding ARSs as the credit markets started to freeze in mid 2007.  FINRA says it did nothing nefarious when it sold its ARSs. But that fails the smell test.  It sold its ARS holdings before the markets collapsed. Meanwhile, investors got stuck with approximately $150 billion of ARSs.

One would have to be exceptionally naïve to think FINRA officials did not have material,


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The FINRA Fiasco

The FINRA Fiasco  

FINRA may have potential massive conflicts of interests in its dealing with its internal investment portfolio. A clear example is FINRA’s behavior with its Auction Rate Securities. Evidence suggests FINRA sold its Auction Rate Securities months before the market collapsed. Insider information or really good luck?

By Ilene 

Interview with Larry Doyle at Sense on Cents

INTRODUCTION 

Background Information: 

Financial Industry Regulatory Authority (FINRA)

The Financial Industry Regulatory Authority, Inc., or FINRA is a private corporation which functions as a self-regulatory organization (SRO, an organization that exercises regulatory authority over an industry or profession). It is not a government agency.  FINRA was formed by the merger of the enforcement arm of the New York Stock Exchange, NYSE Regulation, Inc., and the National Association of Securities Dealers, Inc. (NASD). The merger was approved by the Securities and Exchange Commission (SEC) in July, 2007.

FINRA performs market regulation under contract with brokerage firms and trading markets. It focuses on regulatory oversight of all securities firms that do business with the public. FINRA regulates by adopting and enforcing rules and regulations governing its members’ business activities. It often provides advice to the U.S. Securities and Exchange Commission.  (See FINRA’s website is at http://www.finra.org/.  Also FINRA, http://en.wikipedia.org/wiki/FINRA).

derivativesAuction Rate Securities (ARS)

An auction rate security (ARS) refers to a debt instrument (corporate or municipal bonds) with a long-term nominal maturity for which the interest rate is regularly reset through a dutch auction. (Auction rate preferreds are similar in nature but are shares in a fund and as such are not tied to an underlying longer term maturity loan.)

The auction failures in February 2008 led to widespread freezing of the ARS assets in clients’ accounts. Currently, the instruments trade in a secondary market but at a significant discount to par. A renewed investigation of the ARS industry was led by Andrew Cuomo, the Attorney General of New York, and William Galvin, Secretary of the Commonwealth of Massachusetts. These investigations found industry-wide violations of law. Investors in ARSs maintain these instruments were misrepresented as liquid cash alternatives and allege that broker dealers failed to disclose the liquidity and credit risks involved.  (See also http://en.wikipedia.org/wiki/Auction_rate_security.)

INTERVIEW 

Ilene: Larry, I read your recent article, “FINRA Fraud Team Must Look in the Mirror” (April 16, 2010), in which you discuss FINRA’s “new initiative to target
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Phil's Favorites

Can't Be Bearish

 

Can’t Be Bearish

Courtesy of 

You can’t be bearish on the stock market unless you’re bearish on the biggest group of stocks in said market. And it’s hard to be bearish when you see the type of numbers they’re putting up.

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Zero Hedge

Bezos' Blue Origin To NASA: We'll Pay To Build You A Lunar-Lander

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Authored by John Sexton via HotAir.com,

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US is split between the vaccinated and unvaccinated - and deaths and hospitalizations reflect this divide

 

US is split between the vaccinated and unvaccinated – and deaths and hospitalizations reflect this divide

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Chart School

Investing with Channels - Review

Courtesy of Read the Ticker

The US has a lot of debt, to sell more units of the debt to non US buyers the FED and Treasury must get the unit price of the debt down.

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Politics

New York defines illegal firearms use as a 'public nuisance' in bid to pierce gun industry's powerful liability shield

 

New York defines illegal firearms use as a ‘public nuisance’ in bid to pierce gun industry’s powerful liability shield

Illegal gun use is now a public nuisance in New York. AP Photo/Bebeto Matthews

Courtesy of Timothy D. Lytton, Georgia State University

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Promotions

Free Webinar Wednesday: July 7, 1:00 pm EST

 

Don't miss Phil's Webinar on July 7 at 1:00 pm EST. It's FREE and open to all who wish to join.

Click here: 

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Join us to learn Phil's trading tactics and strategies in real-time!

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Courtesy of Chris Kimble

Is Crude Oil about to blast off and hit much higher prices? It might be worth being aware of what could be taking place this month in this important commodity!

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It created a “Double Top at (2), then it proceeded to decline more than 60% in four months.

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