Secondary Market for Buying and Selling Auction Rate Securities (ARS) - Auction Rate Preferred Securities (ARPS), Municipal Auction Rate Securities (MARS), and Student Loan Auction Rate Securities (SLARS)

Auction-Rate Securities

Market Description

Auction-rate securities (ARS) are longer duration securities that changed hands at frequent auctions, at par, at variable short-term rates. ARS gained widespread popularity because of the slightly higher yields they carried over money-market funds, and the market grew to $330 billion in late 2007. The largest issuers of auction-rate securities had been closed-end investment funds (utilizing preferred shares), student loan lenders, and municipalities. To a lesser extent, issuers included corporations and collateralized debt obligation funds. Originally, auction-rate securities were highly liquid, variable-rate securities that had interest rates reset through a “Dutch auction” process, typically every 7, 28, or 35 days, providing liquidity to holders at par. Since February 2008, the ARS marketplace has experienced widespread auction failures that have left hundreds of billions of dollars “frozen” in now-illiquid ARS. Auction failures persist as the original auction model is broken, and SecondMarket has emerged as the secondary market for the approximately $160 billion in ARS that remain in the marketplace.

Mar 9 2010

Municipal Regulator Seeking Expanded Floating-Rate Disclosure — www.businessweek.com

The top rulemaker, Municipal Securities Rulemaking Board, in the $2.8 trillion municipal bond market is seeking greater transparency on auction-rate securities and variable-rate demand obligations to help investors
The Municipal Securities Rulemaking Board, in proposals to the U.S. Securities and Exchange Commission this week, seeks to widen disclosure about bids in auctions and how variable-rate yields are set

Mar 8 2010

UBS to buy back auction-rate debt, fined by Texas — www.reuters.com

Swiss bank UBS AG agreed to buy back $200 million of auction-rate securities and pay a $6.64 million fine to settle charges it misled clients about the debt's safety
Thursday's accord with the Texas State Securities Board covers investors that were not part of an August 2008 nationwide settlement with several regulators in which UBS agreed to buy back $18.6 billion of auction-rate securities and pay a $150 million fine

Mar 5 2010

Citigroup's Auction-Rate Bonds Freeze $1 Billion in Hawaii Cash — www.businessweek.com

Two years after the auction-rate bond market froze, Hawaii has lost about $250 million in market value on $1 billion in student-loan securities sold by one Citigroup Inc. broker as a cash equivalent that the state has had difficulty unloading
The transactions came while Citigroup was raising brokerage commissions and traders were being told to “make sure all hands are on deck” and “do whatever is necessary” to get rid of auction-rate bonds as the $330 billion market began to fail, according to a 2008 U.S. Securities and Exchange Commission complaint against the New York-based bank in a separate case related to sales of the debt