Government-Sponsored Enterprises:

Changes in Securities Distribution Process and Use of Derivative Products

GGD-93-70BR: Published: Mar 16, 1993. Publicly Released: Mar 16, 1993.

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Pursuant to a congressional request, GAO examined changes in the distribution of government-sponsored enterprise (GSE) debt securities and the use of GSE derivative products that are formed from GSE securities.

GAO found that: (1) agreements between GSE and securities dealers have been revised to ensure accurate reporting and improve allocation procedures by clarifying responsibilities and improving communications; (2) securities are now allocated among dealers primarily on the basis of customer orders rather than the historical performance of the dealers; (3) GSE derivative products have complex risk characteristics that could make them unsuitable for some investors; and (4) investors who purchase derivatives from dealers regulated by the National Association of Securities Dealers (NASD) may not be protected form sales practice abuses, since NASD is not permitted by law to apply most sales practice rules to government securities activities of dealers it examines.

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