The National Credit Union Administration laid out ground rules for the selection and use of brokers in a letter last week to institutions.

The letter was prompted by the springtime collapse of High Yield Management Financial, a Clifton, N.J.-based securities firm that sold certificates of deposit to more than 1,000 credit unions. The agency is concerned that credit unions aren't being thorough enough when they pick brokers or trade securities.

"Credit union managers will often agonize over the purchase of an office copy machine and yet routinely transact millions of investment dollars with brokers they have never met," NCUA chairman Norman E. D'Amours said in the three-page Sept. 15 letter.

A credit union should thoroughly investigate a broker before doing business, the NCUA advised. At a minimum, a credit union should check a broker's references, obtain its financial statements, and conduct background checks through the National Association of Securities Dealers and the Securities and Exchange Commission, as well as state regulators.

Credit union officials also should meet with the brokers.

After selecting qualified brokers, a credit union should shop for competitive rates. When purchasing an investment, it should solicit at least three offerings and when selling an item, obtain three bids, the NCUA said. Not enough credit unions are taking these steps today, the letter said.

"It is sad but true that millions of member dollars are left on the bargaining table daily by credit union investment managers who either shun or short-circuit this difficult, but essential, task," the letter said.

Credit unions also should carefully select a third-party custodian for securities safekeeping, the letter said.

High Yield Management couldn't meet margin calls on its own investments, mostly collateralized mortgage obligations, said Jim Feeney, senior investment adviser for the NCUA.

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