Normally this author would not have time to comment on something as boring as the Federal Reserve Primary Dealer list. But to say there are some strange things happening this week would be an understatement.
For example, here is the current list updated through April 7, 2022 via the New York Fed:
I was just browsing the NY Fed website during a story that I was publishing earlier and noticed the new addition. Beyond the big boys, that name did not ring a bell so some investing was in order and to say it’s a mystery wrapped in an enigma is an understatement. Even to the experts in the financial media.
The story via Bloomberg Quint also had people scratching their heads:
ASL Capital Markets Inc. took the U.S. bond market by surprise this week when it joined the elite club of dealers authorized to do business directly with the Federal Reserve Bank of New York.
While key traders at the company have deep roots on Wall Street and decades of experience working for so-called primary dealers, ASL is a name unfamiliar to many people outside the market for repurchase agreements. It’s certainly lesser known than global banks such as Goldman Sachs Group Inc. and JPMorgan Chase & Co. that constitute most of the existing roster of dealers.
Until now, the Stamford, Connecticut-based organization has been mainly known as a specialist in so-called repo, which involves financing positions in Treasury and U.S. agency mortgage-backed securities. In its new role as primary dealer though — one of just 25 — it will be front and center in the Treasury market and will be required to bid at U.S. government debt auctions.
Good for them. They must have large reserves of capital for investing to do this, even though the minimum requirements to become a primary dealer is now a mere $50 million. It gets even weirder though because they just began trading in Treasury instruments in 2019 and I can find scant public filings before 2017. Also from the article above:
The New York Fed in November 2016 cut its minimum net-regulatory capital for primary dealers to $50 million from $150 million. ASL in its most recent SEC filing reported net capital of $151 million.
The company was named a primary dealer and I looked long and hard for a celebratory press release or news of an interview on CNBC, right? Nope, nothing. In fact this is what happened when they were contacted by Bloomberg/Quint:
ASL’s parent company is Aladin Secured Lending. A person who answered the phone at Aladin Secured Lending referred calls to an external spokeswoman, who said the firm wouldn’t answer questions. A profile on LinkedIn identifies Aminkhan Aladin as chairman Aladin Secured Lending and an individual by that name was also the founder of Aladdin Capital Holdings LLC, which in 2012 settled SEC claims that it misled investors in collateralized debt obligations.
Never mind, the company is as qualified as Goldman Sachs if the Chairman “allegedly” misled investors on CDO’s. This is a very bizarre time to add a small player as a primary dealer at the very time Quantitative Tightening is allegedly underway and liquidity could become a problem later on this year as market instability increases. Now one has to wonder what other small, mysterious players are about to be added as “primary dealers” as the upcoming market distortions begin.
Maybe they can add some more “Pirates” from the Caribbean banks too.