What Are Variable Rate Securities?
Variable rate securities have interest rates that reset on a periodic basis. Auction Rate Securities (ARS) and Variable Rate Demand Obligations (VRDO) are two common types of municipal variable rate securities and have long-term maturities with interest rates that reset on a short-term basis.
ARS are distinguished by the use of an auction process to set interest rates in which securities are sold at the lowest interest rate, or “clearing rate.” 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, called auction agents, and orders are submitted to the auction agent by certain dealers, called Program Dealers.
Learn more about Auction Rate Securities here.
VRDOs are distinguished by a “put” or “tender” feature that allows holders to liquidate their security, at par value, on a periodic basis. A dealer, called a Remarketing Agent, is responsible for reselling to new investors securities that have been tendered for purchase by an investor. To ensure that the securities are able to be “put” or “tendered” by a holder in the event that a Remarketing Agent is unable to remarket the security, VRDOs typically operate with a liquidity facility – a letter of credit or standby bond purchase agreement – which ensures that an investor is able to liquidate their position.
Learn more about Variable Rate Demand Obligations here.
How Can This Data Be Accessed?
The MSRB provides the only centralized, comprehensive database of information about ARS and VRDOs and makes it available for free to the public via the Electronic Municipal Market Access (EMMA®) website.
Users may also obtain an electronic feed of ARS and VRDO data and documents by purchasing a subscription.
How Can Investors Use Variable Rate Securities Information?
This collection of data and documents provides a first-of-its-kind transparency to the municipal securities market and assists investors in making informed decisions about their investments. This information can be used to monitor current interest rates for ARS or VRDOs held by an investor as well as to compare interest rates and other important characteristics.