MSRB Asks SEC to Approve ARS, VRDO Transparency

WASHINGTON - The Municipal Securities Rulemaking Board has filed a proposal with the Securities and Exchange Commission to require the submission of interest-rate information for auction-rate securities and variable-rate demand obligations to a short-term market transparency system that the board hopes to launch next year.

The information will be collected and disseminated through SHORT, the Short-term Obligation Rate Transparency System, that the MSRB hopes to launch in an initial format on Jan. 30, 2009. Two subsequent phases, which the board hopes to launch during the first half of 2009, will include bidding information and documents for auctions and remarketings.

The board is requesting that the SEC approve the proposal on an expedited basis, which could make it effective immediately upon publication in the Federal Register, according to a person familiar with the matter, who stressed that, under that scenario, it would still be open to public comment after implementation.

The system comes after the approximately $330 billion auction-rate market collapsed in February when dealers withdrew support for auctions, shunning ARS because they were backed by insurance from downgraded bond insurers and lacked the put option featured on VRDOs.

Data collected by Bloomberg LP last month suggests that there remain over $80 billion of municipal ARS outstanding - down from about $170 billion last year. There are well over $400 billion of outstanding VRDOs. However, there is no source of comprehensive same-day information about auction-rate securities available to non-market professionals.

Under the proposal, ARS and VRDO interest rate information must be submitted to the board by 6:30 p.m. EST on the day of the auction or remarketing.

For ARS, the board wants to collect: Cusip numbers; the interest rate produced by the auction process and designation of whether the interest rate is a maximum rate, all-hold rate, or rate set by auction; the identity of all program dealers that submitted orders, including hold orders; the date and time of the auction; the date and time the interest rate was communicated to program dealers; the length of time that the interest rate is applicable; the minimum denomination; the par amount auctioned, not including hold orders effective at any rate; and the minimum and maximum rates, if any, applicable at the time of the auction or, if not calculable as of the auction, an indication that such rate or rates are not calculable.

For VRDOs, the board wants to collect: Cusip number; the interest rate and designation of whether the rate is a maximum rate, set by formula or the remarketing agent; the identity of the remarketing agent; the date and time of the interest rate reset; the length of time the rate applies; the minimum denomination; the length of notification period; the minimum and maximum rates, if any, applicable at time of the interest rate reset or, if not calculable as of the rate reset, an indication that such rate or rates are not calculable; and the type and expiration date of each applicable liquidity facility.

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