Auction rate securities are a type of long-term fixed income instruement that perform like short term bonds. Auction rate securites became popular with investors looking for safe, cash type investments that offered additional returns beyond a typical money market account. Investors were also driven to these securities because they were liquid and simple to buy and sell.
The market for auction rate securites has now evaporated given fears about the decline of subprime securities.
Today the Wall Street Journal reported that a wealthy family lost nearly $286 million dollars in auction rate securities with Lehman Brothers Holdings, Inc. The clients did not believe that they were taking significant risks and have since brought a claim with the Financial Industry Regulatory Authority (FINRA) to recover their losses.
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