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  4. Can A Bank Back Out Of A Cd ?

Can A Bank Back Out Of A Cd ?

betaguy
  |     |   180 posts since 2022

an investor can cancel order before settlement.

can a bank cancel a brokered cd offering?

Or, once listed, they are obligated?

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Answers
OrderlyChaos
  |     |   30 posts since 2018
Betaguy, the answer is a definitive yes. How do I know? - I've had this happen to me.

After placing an order to purchase a Brokered CD, and later auditing my account, I have discovered that I could not see it in my list of investments. After searching my Investment Account, I could not find the details of what happened. Luckily, I've had all the information from my original order. When I called my brokerage and asked for details - it took them a while to figure it out. In the end, they told me my order was cancelled by the bank because the bank OVERSOLD their offering. Important note that I've never had a cancellation entry of my original order.

Hope this provides you with an answer you were looking for.
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betaguy
  |     |   180 posts since 2022
Thanks OC. Did you verify that the CD was actually created? (via CUSIP#).
(Being oversold means you got bumped from the offering and that the offering still happened.)

It just seems that the banks have a sort of arbitrage around important dates. they bracket the offering date with the settlement date of sometimes weeks. So, if the news doesn't come out the way they wish they just quietly cancel the offering (and call it oversold).
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OrderlyChaos
  |     |   30 posts since 2018
BG, from the looks of it, I think you are correct - they never followed through with the CD, because I cannot find it in the listing of ANY CDs (inclusive of secondary market) at the brokerage that was offering it. Funny, though, that I did get another of their CDs at a higher rate. :)

So yes, the banks certainly do have that arbitrage - but at the same time, we, the purchasers, have that arbitrage (at some brokerages) as well, as I have used it to cancel my CD orders when a better deal came up. So it goes both ways...
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MAKNYC
  |     |   323 posts since 2015
Having worked in the securities/asset management industry for my entire career, although I am not a lawyer with brokered CD experience, I would be shocked if there was some reason a bank could not cancel an offering. An offering is just that….an offering. Cancellation of offerings of other securities happen all the time….up until settlement date. It appears in your fact pattern you are asking if it’s possible before your purchase interest is accepted. That would seem very easy. The period between purchase acceptance (trade date) and settlement date would be tougher, but I still think it would be theoretically possible under extreme circumstances. But after settlement, unless there is a specific contractual term allowing it (I’ve seen this is direct CDs, not brokered) or in the event of a dissolution/regulator sanctioned transfer of accounts then it could not happen.
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betaguy
  |     |   180 posts since 2022
MAK, yes, I'm referring to The period between trade date and settlement date.
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choice1
  |     |   370 posts since 2023
Underwriting commitment also comes into play…firm or best efforts…probably the latter
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