Morning Commentary: Coinbase convertible notes in focus early following SEC lawsuit

By Abigail W. Adams

Portland, Me., June 6 – The convertibles primary market remained quiet on Tuesday with the calendar for the final weeks of the second quarter a guessing game.

Market players had expected “a ton of refinancing and biotech” deals in 2023, a source said.

With the year almost half-over, it was unclear how much of the expected issuance was still pending.

With the primary market quiet, activity in investment-grade issues tempering, and equities awaiting the next big catalyst for movement, trading activity in the secondary space remained muted early Tuesday.

Equity indexes launched Tuesday mixed but turned positive as the session progressed with the Dow Jones industrial average up 47 points, or 0.14%, the S&P 500 index up 0.20%, the Nasdaq Composite index up 0.22% and the Russell 2000 index up 1.69% shortly before 11 a.m. ET.

While the overall secondary space was quiet with volume light, topical news continued to move outstanding issues.

And news that the Securities and Exchange Commission had filed suit against Coinbase Global Inc. was the market moving headline of the day.

Coinbase’s 0.5% convertible notes due 2026 sank outright as stock plunged with the SEC intensifying its crackdown on crypto-exchanges.

The 0.5% notes sank 3 points outright.

The convertibles were changing hands at 65.5 early in the session with the yield 14.5%.

The notes have a massive premium of over 600%, making their dollar-neutral move difficult to track, a source said.

There was $12 million in reported volume.

Coinbase’s stock was trading at $50.38, a decrease of 14.18%, shortly before 11 a.m. ET.

Stock plunged with Coinbase the second crypto-exchange targeted in an SEC lawsuit in as many days.

The SEC suit alleges that Coinbase, the largest crypto-exchange in the United States, was evading regulations by allowing users to trade crypto tokens that were unregistered securities.

In March, the SEC served Coinbase with a Wells notice informing of its intention to take enforcement action against the company.

The SEC lawsuit against Coinbase comes the day after it filed suit against Binance, the largest global crypto-exchange, alleging that Binance had illegally operated in the United States and misused customer funds.

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