Brokerages start buying back frozen securities

By Beth Healy


October 3, 2008


At least three major brokerage firms have started buying back auction-rate securities, as they promised to do in recent settlements with regulators. They are doing so even though the Securities and Exchange Commission, under fire amid the Wall Street meltdown, has yet to officially sign any of the orders.


Legally the firms could renege on the agreements, according to a veteran securities lawyer. But they are unlikely to do so and risk their reputations further.

The SEC declined to comment.


State regulators and the SEC secured about $60 billion in auction-rate settlements from nine major firms over the summer, requiring them to let investors sell securities they've been trapped in since February. So far, the firms - some of which are now merging out of existence - say they are honoring the agreements.


Merrill Lynch & Co. and Bank of America Corp. said they started buying back $14.5 billion of these bonds and preferred-stock investments on Wednesday. Bank of America's deal to acquire Merrill, the nation's largest brokerage, does not affect those obligations, the firms said.


"We have begun to purchase auction-rate securities from our smaller retail clients and former retail clients. The purchases have gone smoothly and have met our expectations," Merrill spokesman Mark Herr said. In January, Merrill will offer to purchase auction-rate securities from clients with accounts larger than $4 million.


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