The Restricted Securities Trading Network has announced it will create a secondary market that allows hedge funds to buy and sell auction-rate securities.
The Restricted Securities Trading Network has announced it will create a secondary market that allows hedge funds to buy and sell auction-rate securities.
RSTN will begin trading auction-rate securities on Monday, March 3, 2008, creating a much-needed secondary market for the USD330bn asset class.
Over the past few weeks, the lack of a public market for auction-rate securities has left investors holding a large number of securities that failed to sell at auction. Given this lack of liquidity, Restricted Stock Partners chief executive Barry Silbert sees an opportunity for his company’s electronic trading platform to provide a centralised secondary market for privately negotiated transactions in auction-rate securities.
‘The platform already is widely used by hedge funds. While RSTN is creating liquidity for holders of restricted securities and auction-rate securities, it is also creating a buying opportunity for hedge funds and others,’ Silbert says. ‘Because restricted securities and auction-rate securities lack liquidity, hedge funds may have an opportunity to purchase them at a discount through the RSTN.
‘With a membership base of more than 400 institutional and accredited investors, the RSTN is the country’s largest online marketplace for illiquid assets,’ Silbert says.
‘Given our independence from the traditional auctions and our anonymous bidding process, the RSTN is uniquely positioned to address the liquidity needs of holders immediately.’
RSTN members include global financial institutions, hedge funds, mutual funds and other institutional investors who collectively manage over USD200bn in assets. To date, more than 1,000 transactions have taken place on the network, which was founded in 2005. Online access to the RSTN is available at no charge to institutional and accredited investors.
Auction-rate securities, which are frequently tax-exempt, include preferred stock and long-term bonds that resemble short-term debt. Municipalities, utilities, hospitals, schools, student-loan companies, and closed-end funds issue them to raise cash for capital projects and ongoing operations.
Investment banks conduct auctions that reset rates on auction-rate securities anywhere from daily to every 90 days. The credit crisis that began last year has contributed to recent failures in many of these auctions.
‘As an independent secondary market,’ Silbert says: ‘The Restricted Securities Trading Network should help to address the illiquidity of failed auction-rate securities, while creating attractive opportunities for institutional and accredited investors seeking to enter the market.’
In addition to auction-rate securities, other assets currently traded through the RSTN include unregistered stock, warrants, convertible securities, 144A equity and private company securities.
Restricted Stock Partners of New York, NY, a division of Green Drake Capital Corp, manages the Restricted Securities Trading Network, the largest online marketplace for restricted securities and other illiquid assets in the United States. RSP handles all administrative and settlement services associated with restricted securities transactions.
