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Day: January 15, 2020

Broker-Dealers Busted for Tendering More than their Net Long Positions

Two broker-dealers were fined and censured for tendering more than their net long positions in a partial tender offer.  Both of the firms had sold call options, thereby reducing their net long positions, but the firms tendered the full amount of their long positions, thereby receiving more than their fair shares of the partial tender.  The broker-dealers violated Rule 14e-4 (aka the short tender rule), which prohibits a person from tendering more than its net long position in a partial tender offer.

Closed-end funds with limited liquidity should surveil for these types of trading shenanigans so that brokers don’t game the tender offer system.