Disclosures
Auction Rate Securities Brokerage Disclosure Disclosures client Rate Schedule Investor Education Margin Mutual Funds Options Order Routing Information Patriot Act Cash Sweep Program Money Market Funds FDIC InsuranceE.K. Riley Investments and it’s clearing agent First Clearing, LLC use the following allocation policy for liquidation of auction rate security positions.
Follows are the details related to the partial call redemption process for auction-rate securities (ARS) and what, if any, actions must take in order for clients to participate in this process. The following is a list of frequently asked questions that explains the partial call procedure in connection with securities held in street name. Please note that the information below describing the call redemption process generally applies to any security subject to a partial call. The answers to these questions, however, focus mainly on partial calls of ARS.
Q: What is a partial call?
A: A partial call occurs when a security issuer announces its intention to call a portion, but not all, of a specific security. In the case of ARS issuers, this means an issuer may call a portion of a specific ARS CUSIP or multiple CUSIPs. Our clearing firm is then contacted by the depository handling the partial call redemption process.
Q: How does the firm handle partial calls?
A: Once notified of the specific securities called by the ARS issuer, its depository (typically the Depository Trust Company [DTC]) will determine how partial series redemptions will be allocated among each participant broker-dealer account. After notification from DTC of First Clearing, LLC allocation of the call, if any, the Reorganization Department [or Corporate Actions Department], in turn, conducts a fair and impartial lottery by computer to determine which of our street-name clients are called. The lottery is conducted in a manner that the probability of a customer’s security being selected as called, is proportional to the holdings of all street-name clients of that particular security (see examples on right).
Q: What do I have to do to be part of the call/lottery process?
A: Nothing. Our clearing agent conducts the lottery by computer to determine which of our street-name client positions are called. The Reorganization Department [or Corporate Actions Department] will then contact the clients — and the FAs whose clients have units called — to alert them if some or all of their units have been called.
EXAMPLES OF ARS PARTIAL CALLS
Because actual security numbers are not identified to street-name holders, the lottery is performed based on the number of units a client owns. For example, if a customer owns $250,000 and the unit of trade used for the call is $25,000, the customer will be entered into the lottery with 10 units, while a customer owning $25,000 is entered with one unit. In a lottery, each unit or share has equal odds of redemption.
Amount Owned I Unit of Trade for Call = Units Eligible for Lottery
| AMOUNT OWNED | UNIT OF TRADE FOR CALL | UNITS ELIGIBLE FOR LOTTERY |
| $1,000,000 | $25,000 | 40 |
| $250,000 | $25,000 | 10 |
| $100,000 | $25,000 | 4 |
| $50,000 | $25,000 | 2 |
| $25,000 | $25,000 | 1 |