The Municipal Securities Rulemaking Board issued a report Tuesday summarizing the data it has collected on auction-rate securities and variable-rate demand obligations, as the Securities and Exchange Commission approved the board’s proposal to provide $10,000-per-year subscriptions for real-time data on such securities.
ARS and VRDOs constitute nearly 15% of the $2.8 trillion municipal securities market, the MSRB said in its report, which documents the collapse and decline of the two markets.
From January 2008 through May 2010, ARS par volume traded plummeted 97% and the number of trades fell 98%. During the first five months of this year, trading volume averaged $4.5 billion and 3,246 trades, compared to a monthly average of $113.6 billion and 137,225 trades for the same period in 2008, the MSRB found.
VRDO par volume traded declined 38%, with the number of trades dropping 70% from the start of 2008 through May 2010, according to the board. During the first five months of the year, trading volume averaged $123.4 billion and 20,644 trades, compared to $200.4 billion and 69,514 trades for the same period in 2008.
Roughly 44,137 muni ARS rate resets were reported to the board from February 2009 when it began collecting the information through May 2010. About 36,938, or more than 83%, were set at the maximum rate for the security, indicating a failed auction. Only 6,572 were “set at auction,” signifying a successful auction, the MSRB said.
The number of ARS rate resets fell about 22%, from a weekly average of 739 in February 2009 to a weekly average of 579 in May 2010. Most of the ARS rate resets were for securities whose rates reset every seven days.
They accounted for 23,070, or nearly half of all resets during the 15 month period. About 21% were ARS with 35-day rate resets, 14% were ARS with 14-day rate resets, and 7% were ARS with one-day rate resets, the MSRB said.
Average interest rates for muni ARS set at auction with seven-day resets plummeted 74% during the 15 months, and were down 31% for ARS with set at the maximum rate with seven-day resets, according to the board.
Meanwhile, more than 1.26 million VRDO resets have been reported to the MSRB since April 2009. The number of interest-rate resets reported on a weekly basis has decreased from an average of about 21,972 that month to an average of about 19,814 in May 2010.
VRDOs with a seven-day interest rate reset accounted for about 66% of all interest rate resets, and one-day resets accounted for 26%.
The top two of 10 ARS program dealers for February and March 2009, as well as April and May 2010, were UBS Securities LLC and Citigroup Global Markets Inc., according to the MSRB.
For VRDOs, JPMorgan and Wells Fargo Bank NA Municipal Products Group were the top remarketing agents for April and May of 2010, while Banc of America Securities LLC and JPMorgan led the pack for the same months in 2009.
