An auction rate security (ARS) is a municipal security for which the interest rate
resets on a periodic basis through an auction process. The typical auction process
is one referred to as a Dutch auction in which securities are sold at the lowest
interest rate, or “clearing rate,” at which all of the securities that have been
offered for sale by current holders of the securities will clear the market. Auctions
are conducted by agents of the issuer of the ARS, called auction agents, and orders
are submitted to the auction agent by certain dealers, called program dealers, that
have rights granted to them through an agreement with the issuer or auction agent
to submit orders. Information on EMMA about an ARS is provided by the MSRB’s Short-term
Obligation Rate Transparency (SHORT) System, which began collecting such information
on a phased-in basis beginning January 30, 2009. Information about an ARS generally
is collected by no later than 6:30 P.M. Eastern on the day that an auction occurs.
The following items are disclosed in connection with an auction in an ARS, depending
on your current view.
Date and Time of Interest Rate Reset
- shows the time and date that an auction took place.
Date and Time of Interest Rate Posting
- shows the time and date that results of an auction were communicated to program
dealer(s) by the auction agent following an auction.
CUSIP - shows the CUSIP9 number
for the ARS. Data is not available for an auction in an ARS that does not have a
Program Dealer(s) - shows all
program dealers that submitted orders to the auction agent to buy, sell or hold
securities in an ARS through the auction process. Note that the identity of each
program dealer is displayed as such information is received and processed by the
SHORT System so, for an ARS having multiple program dealers, the list of program
dealers for an auction may grow as the day progresses and each program dealer submits
its information at different times.
Length of the Interest Rate Reset Period
- shows the number of calendar days that the interest rate produced by the auction
process is applicable.
Interest Rate - shows the interest
rate, expressed as a percentage, produced by the auction process. This is the interest
rate that the ARS will be during the applicable interest rate reset period.
Rate Type - shows how the interest
rate was determined on the specific auction date. Rate type categories are as follows:
- (M) Maximum Rate – indicates that the interest
rate is set at the highest rate allowable under the ARS program documents, typically
as a result of a “failed” auction.
- (H) All Hold Rate – indicates that all existing
holders in an auction decided to hold at any rate. An all hold rate typically is
a multiple of a specific market index as specified under the ARS program documents.
- (A) Set by Auction – indicates that the interest
rate reflects the lowest interest rate at which all of the securities that have
been offered for sale by current holders of the securities cleared the market, also
known as the “clearing rate.”
Minimum Denomination - shows
the minimum principal amount permissible for transactions in the security as specified
under the ARS program documents.
Minimum Rate - shows the lowest
interest rate, if any, as specified under the auction rate security program documents
that could be set for the ARS on the day that an auction occurs. If a minimum rate
is specified in the program documents, but such interest rate is the result of a
formula that cannot be calculated on the day of an auction, a value of “NC” will
Maximum Rate - shows the highest
interest rate, if any, as specified under the ARS program documents that could be
set for the ARS on the day that an auction occurs. If a maximum rate is specified
in the program documents, but such interest rate is the result of a formula that
cannot be calculated on the day of an auction, a value of “NC” will be shown.
Order Type - indicates whether
an order submitted is an order to buy (B), sell (S) or hold (O).
Order Interest Rate - shows
for orders to buy or hold at rate, the interest rate associated with such orders.
Order Entity -indicates whether
an order placed or that was filled is for an investor (I), program dealer for its
own account (P) or issuer/conduit borrower of the ARS (C).
Order Par Amount - shows the
aggregate par amount submitted to the auction for each order type, interest rate
for buy and hold at rate orders, and order entity.
Filled Par Amount- shows the
aggregate par amount filled as a result of the auction for each order type, interest
rate for buy and hold at rate orders and order entity.
Bid-to-Cover Ratio - ratio providing
one indication of the level of demand, or lack thereof, by investors and, in a limited
number of cases, issuers/conduit borrowers in an auction for an auction rate security
using the following formula: (Par Amount Outstanding – Aggregate Sell Orders – (Aggregate
Hold at Rate Orders – Aggregate Hold at Rate Orders Filled) + Buy Orders) / Par
Amount Outstanding. This calculation does not include orders by program dealers
for their own accounts and therefore the bid-to-cover ratio provides only a representation
of demand for the auction rate security by investors and issuers/conduit borrowers
in comparison to the supply of auction rate securities from these auction participants.
A bid-to-cover ratio greater than 1 indicates that the demand among investors and
issuers/conduit borrowers for the auction rate security was greater than the amount
of securities offered for sale by these auction participants in an auction. A bid-to-cover
ratio of less than 1 indicates that the demand among investors and issuers/conduit
borrowers for the auction rate security was less than the amount of securities offered
for sale by these auction participants and a bid-to-cover ratio of 1 indicates that
these amounts were equivalent. However, since the bid-to-cover ratio does not reflect
program dealer orders, the bid-to-cover ratio for a successful auction may be less
than 1 if the auction was successful as a result of buy orders from program dealers.
In addition, in some instances, a bid-to-cover ratio will not be displayed because
the calculation was not able to be performed due to erroneous or insufficient data.
Note that on December 10, 2012 this formula changed from a ratio depicting the aggregate
par amount of securities bid for the aggregate par amount of securities offered
for sale that included program dealer orders for their own accounts and did not
incorporate the par amount outstanding of the auction rate security. Thus, historical
bid-to-cover ratios differ from those computed on or after December 10, 2012. For
the most complete understanding of the level and nature of demand in a specific
auction, you should view the details of each order entered (including orders entered
by program dealers) for such auction by clicking on the green expand (+) button
corresponding to that auction date on the Auction Information tab of the Security
Details page for such security.