Brookstreet Liquidates Portfolio after Margin Calls by Fidelity Unit

Brookstreet Securities Corp. has liquidated securities following margin calls by National Fidelity Securities (NFS), a division of Fidelity Investments.

Earlier in the week, it was reported on this blog that Brookstreet informed its agents in an E-mail that “disaster” had struck the firm. NFS had marked down the value of collateralized mortgage obligations (CMOs) that the firm and its clients held and that the firm would likely fail without an infusion of capital. A copy of that E-mail can be found in an earlier Blog story.

Because of the markdowns of the CMOs, margin calls were issued leading to a liquidity crunch, according to a Brookstreet trader. When the margin calls were not satisfied, the securities were liquidated. On Friday, the firm announced that it had closed for business.

Funds and securities in Brookstreet clients’ accounts, held at NFS, will continue in the custody of that “clearing firm,” said a Fidelity spokesman, referring all further questions to Brookstreet.

As earlier reported here, while the value of many Brookstreet clients’ accounts fell, NFS would not speak with clients, referring them to “your broker.” Meanwhile, their brokers were not answering their phones.

“We have been advised by Brookstreet that its securities business is limited to liquidating trades only,” the NFS spokesperson said. This means that sales can be entered in client accounts, but no purchases (except to cover short positions). The question for many Brookstreet customers was who they should call to sell their positions.

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