The auction-rate securities crisis has reached a point of resolution. By early September, state securities regulators and the Securities and Exchange Commission had successfully coaxed at least eight investment banks to repurchase from investors, at face value, illiquid securities that amount to more than $50 billion. And Bank of America, the ninth bank involved so far, negotiated a $4.5 billion settlement at press time.

With all grievances presumably addressed, all must be well between investors and their investment banks, right? Not exactly, say some industry sources.

The news of the settlements is certainly refreshing to investors, but so far it only applies to those who bought the auction-rate securities directly from the managing investment bank. Left out is the sizable portion of the customer base that bought from the smaller, regional brokerage firms.

Approximately $60 billion of the auction-rate securities market, including investments held by institutional and retail clients, is held in accounts at the distributing dealers, says Michael Decker, co-chief executive officer of the Regional Bond Dealers Association.

At the height of the market, the amount of auction-rate securities outstanding was estimated to be $330 billion. But earlier this year, that market dried up as the credit crunch took its toll and these securities, which were once considered safe and highly liquid, began to get written down in value. Now the market is estimated to be about $160 billion.

One more twist on the settlement news: the high-net-worth crowd will, uncharacteristically, be waiting at the end of the line. Most of the settlement agreements include language that clearly puts small-time investors, such as individuals who fall under the high-net-worth threshold, as well as small businesses, charities and non-profits, at the front of the line for compensation. They will get most of their settlement money this month and next month.

High-net-worth individuals and institutional investors constitute the second wave of investors who will either get the chance to sell their illiquid securities back to the investment banks, or receive loans to provide temporary liquidity until the auction-rate securities market revives itself. Those settlement payments will probably be coming in the first half of 2009.

Most industry sources agree that wealthy investors have the luxury of waiting 12 months, or longer, to see how the auction-rate securities market will shape up, says Mayiz Habbal, a senior vice president of capital markets for New York-based research firm, Celent.

The regional bond association, which represents brokerage firms such as Raymond James Financial, says the settlements do not go far enough. They should include investors who bought their auction-rate securities through the distributing firms. Otherwise, they argue, the current settlements leave many investors out in the cold. "If you are an investor who bought a security where the auction was managed by the settling firm, but bought through another firm, [then] do those commitments apply to you?" Decker says.

Some sources say that the large banks that actually ran the auctions should be the ones that buy back the securities, not the so-called distributing firms. But an important consideration is that most of the settlement firms are cash-strapped. "They really don't have too much [capital] to go around," Habbal says of the banks.

There is a whole community of firms that served as distributors of auction-rate securities, but did not act as lead managers on the auctions. Those smaller firms had little to do with periodic auctions that took place, says Decker. He adds that the lead managers of the securities auctions were privy to exclusive and critical information about the market.

Unlike the regional brokerage firms that distributed the securities, the lead managers routinely see the total number of bidders and they know whether sufficient demand exists to support the auctions. They knew, for example, that demand was faltering last fall, as they took increasingly larger positions in the auction-rate securities market to keep it afloat. Because of that exclusive access to information, those firms should be held accountable to all investors who bought the securities, whether directly through them or another firm.

"If the ARS investor-customers of distributing dealers were excluded from commitments by lead managers to liquidate ARS positions or provide other benefits or compensation to ARS investors, those investors would be worse off than if no settlements were executed at all," according to a letter from the regional bond association to the SEC, the New York Attorney General's office and the North American Securities Administrators Association.

In the absence of settlements, wrote the regional bond association, investors in failed auction-rate securities had some prospect of finding buyers for their positions. Customers of distributing dealers, however, would find their securities tainted, because they would be outside the obligations of lead managers specified in the settlements.