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What Exactly Is Finra Investigating

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by Felix Salmon
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Jan 04 2008 12:00am EDT

What, Exactly, is Finra Investigating?

Paul Jackson has a smart take on the news today that Finra is investigating sales of mortgage-backed securities to retail investors. Basically, MBSs come in two flavors: very safe, and very dangerous. Since sales of very-safe securities wouldn't trigger a Finra investigation, that would seem to imply that someone, somewhere, might have been selling mortgage-backed interest-only strips to individual investors. In 2007.

If this turns out to be the case, then it had better be some fly-by-night brokerage which is at fault. Any major shop which did this would deserve massive punishment.

Alternatively, if Finra turns out to be investigating plain-vanilla REMICs, then all brokers should start being very afraid, since these are, as Jackson says, "literally, your grandmother's securities".

It's also worth noting that according to a new SEC report, "investors typically don't grasp the difference between brokers and financial advisers". Here's one way of telling: if you're an individual investor and someone is trying to sell you an IO strip, you're not talking to a financial adviser who is acting in your best interest.

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