February 25, 2008 / 6:08 PM / 11 years ago

Electronic trade to start for auction-rate market

NEW YORK, Feb 25 (Reuters) - An electronic trading platform, Restricted Securities Trading Network, said on Monday it will begin trading auction-rate securities on March 3, creating a secondary market for the troubled asset class.

The $330 billion auction-rate market seized up at the end of January as traditional buyers and dealers abandoned the sector, fearing losses on insured securities if ratings of bond insurers were downgraded.

Hundreds of auctions have collapsed since then, leaving investors stuck with securities that had been viewed as almost as liquid as cash. Auctions are currently failing at the pace of $15 billion to $25 billion per day, according to JP Morgan Securities.

Auction-rate securities are long-term bonds with interest rates that reset through bidding, from every day to every 35 days. An auction fails if not enough buyers emerge to purchase all the bonds put out for sale.

But some hedge funds and wealthy individuals now see these distressed securities as bargains and are vying for them.

“As an independent secondary market, the Restricted Securities Trading Network should help to address the illiquidity of failed auction-rate securities,” the firm said in a statement.

The trading network said its electronic trading platform is the largest online marketplace for illiquid securities in the United States, such as unrestricted stock, warrants, convertible securities and private company securities.

It has more than 400 members, including global financial institutions, hedge funds, mutual funds, and other institutional investors who collectively manage over $200 billion in assets, the firm said.

Though the system is open to any sellers, only members can buy through it. (Reporting by Anastasija Johnson; Editing by Leslie Adler)

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