ARS Guidance

To read about auction-rate securities litigation, click here.


In response to the auction-rate market's recent nosedive, regulatory and industry organizations are speaking out to help out-of-luck investors and guide broker/dealers through ARS. Here are a few tips from the experts.


In an April 30 investor alert, the Financial Industry Regulatory Authority (FINRA) cites several options for investors left holding illiquid ARS.

  • Continuing to hold. "There is, of course, a chance that subsequent auctions will fail as well."
  • Borrowing on margin from your brokerage firm. "[B]e aware that the interest rate charged on these loans may exceed the yield you are getting on the underlying security."
  • Liquidating other investments. "[B]e sure to think about the following factors: The total transaction costs that you would incur inliquidating a particular position. ... Whether the sale will trigger adverse tax consequences. ... How the liquidation will impact the balance of your portfolio."
  • Selling on the secondary market to a third party. "[R]ecent events ... have caused secondary market transactions to become more difficult to complete. ... [K]eep in mind that selling outside of the auction process may make it harder to determine whether you are getting a fair value."

Click here for more ARS guidance from FINRA.

The Securities Industry and Financial Markets Association (SIFMA) issued a letter Feb. 21 to the SEC asking for guidance for broker/dealers. In particular, it requested clarification on whether it is permissible for a broker/dealer to sell ARS out of its own inventory.


On March 14, the SEC responded, "[Cease-and-desist orders issued by the SEC] explicitly provide that they do not prohibit broker/dealers from bidding for their proprietary accounts when properly disclosed."

For additional broker/dealer guidance and details on what proper disclosure consists of, view the SEC letter via SIFMA here.

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