Feb 25, 2008
Auction-Rate Trading Web Site Opens to Ease Failures
By Darrell Preston
Investors in the $330 billion auction-rate bond market may soon buy and sell the securities through a Web site set up by a New York firm specializing in hard-to-trade assets.
Restricted Stock Partners plans to begin trading auction-rate securities beginning March 3, the company said in a press release today.
The company, which represents hedge funds and other institutional investors with $200 billion under management, is seeking to fill a void left when investment banks that supported the auction-rate market stopped buying the debt at the periodic auctions they run to set yields on the securities. Their refusal to ensure successful auctions by putting up their own capital caused hundreds of failures, driving borrower costs higher and leaving investors unable to sell the bonds.
“As a seller, you’re at the mercy of the bank where you hold the securities,” said Barry Silbert, the company’s chief executive officer, in a telephone interview. “Some holders are pressing the market to sell them.”
Listing securities on the company’s Restricted Securities Trading Network will be free and a transaction cost of about 1 percent will be split between the buyer and seller, Silbert said. Restricted Securities Trading serves 400 institutions and wealthy investors who trade restricted stock, warrants and stock options, convertible debt and preferred stock and private company securities.
Selling Below Par
Investors who sell on the network may need to accept a discount to par, or less than 100 cents on the dollar, forcing some to take a loss on holdings they thought were as safe as cash.
Investors and issuers already buy and sell auction-rate securities in the secondary market as evidenced by Municipal Securities Rulemaking Board transaction reports, said Joseph Fichera, chief executive of Saber Partners LLC, an advisory firm in New York.
“I am not aware of any impediment to bonds trading in the secondary market,” Fichera said.
–Editors: Beth Williams, Michael Weiss