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.

Feb 4 2010

JPMorgan To Pay $3.2 Mln In Texas Auction-Rate Security Case — online.wsj.com

J.P. Morgan Chase & Co. agreed to pay $3.2 million to resolve a case brought by Texas over the marketing of auction-rate securities, joining a host of other financial-services companies that have paid fines to Texas and other states
The consent order versus J.P. Morgan found the institution "failed to ensure that all of its registered representatives made appropriate disclosures to customers regarding the nature and risks of auction rate securities
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Jan 28 2010

Citigroup, UBS Win Auction Antitrust Suits’ Dismissal — www.bloomberg.com

Citigroup Inc., Goldman Sachs Group Inc., UBS AG and seven other banks won dismissal of lawsuits in which they were accused of violating U.S. antitrust law by propping up, supporting and then abandoning the market for auction-rate securities
U.S. District Judge Barbara Jones in New York dismissed the lawsuit in a ruling yesterday
At least 39 proposed securities class actions were filed against 19 broker-dealers since the $330 billion market for auction-rate securities collapsed back in 2008

Jan 28 2010

Nuveen Virginia Premium Income Municipal Fund Issues At-Par Redemption Notice for Auction-Rate Preferred Securities — www.earthtimes.org

Citigroup Inc., Goldman Sachs Group Inc., UBS AG and seven other banks won dismissal of lawsuits in which they were accused of violating U.S. antitrust law by propping up, supporting and then abandoning the market for auction-rate securities
U.S. District Judge Barbara Jones in New York dismissed the lawsuit in a ruling yesterday
At least 39 proposed securities class actions were filed against 19 broker-dealers since the $330 billion market for auction-rate securities collapsed back in 2008