DealBook reports that Fidelity Investments has agreed to buy back $300 million worth of auction-rate securities (ARS). This settlement is a first in the sense that the previous redeemers were ARS issuers. Fidelity is considered to be "downstream" from the issuers. And its decision to settle puts pressure on other downstream participants such as Oppenheimer and Raymond James.
Exactly what has Fidelity agreed to do? "According to the terms of the deal, the first struck with a 'downstream' seller of these securities, Fidelity will not pay a fine. The firm will buy back auction-rate securities from individuals, charities and institutional investors alike, making no distinction among investor classes, as previous settlements with other firms have," DealBook writes.
Of the $330 billion in ARS that were issued, only 10% have been redeemed so far -- "the big banks have repurchased more than $35 billion of the securities and paid more than $360 million in fines," according to DealBook. I am impressed that regulators are continuing to push hard to get ARS issuers to take care of these investors given all the distraction from the weekly collapse of one major financial institution after another.
Peter Cohan is President of Peter S. Cohan & Associates. He also teaches management at Babson College and edits The Cohan Letter
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