WSJ: Fidelity-Auction Rate Securities Settlement Update

Over two weeks ago, I quoted a Wall Street Journal report on how Fidelity was dragged into the muddy waters of the ongoing Auction Rate Securities brouhaha. As an update today, Liz Rappaport and Shefali Anand of the Wall Street Journal Online [subscription required] write, "Fidelity, NY Near Settlement On Auction-Rate Securities."

Under regulatory pressure, Fidelity Investments, a leading online brokerage firm, is close to a settlement with the New York Attorney General Andrew Cuomo's office to buy back auction-rate securities from its customers to the tune of about $300 million, according to a person familiar with the negotiations.

The move sets the stage for mid-level and online discount brokerage firms to buy back auction-rate securities sold by them, just like some large Wall Street banks have done over the last few weeks. UBS AG, Merrill Lynch & Co. and Citi Smith Barney, along with others, have promised to buy back nearly $70 billion of such securities sold by them.

A Fidelity spokeswoman said "We do not have any agreement with any regulator. Anything else would be speculative."

The settlements by the Wall Street firms didn't cover ARS they had underwritten and brokers like Fidelity later sold. So far, these brokers have been resisting a push to buy back these securities, saying that they didn't bear the responsibility to do so because they did not underwrite or sponsor these securities, but merely acted as go-betweens.