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MSRB Adds Transparency for Variable Rate Munis

By Kate McBride

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Investors can now expect more transparency in variable rate municipal securities, according to an announcement Monday from the Municipal Securities Rulemaking Board (MSRB).

The MSRB has added interest rates, demand levels, liquidity provisions and auction procedures to its free Electronic Municipal Market Access (EMMA) website, or emma.msrb.org.

EMMA will also provide details on variable rate demand obligations (VRDOs) including liquidity facility documents that include letters of credit and stand-by bond purchase agreements, the tender agent, par amounts held as a bank bond (if any) and the par amounts held by those outside of the liquidity provider.

Bidding information for auction rate securities (ARS) that outlines auction procedures and those for determining the interest rate for a successful auction will also be posted on EMMA, along with the ARS’ bid-to-cover ratio.

"Today's changes on EMMA raise transparency of municipal variable rate securities to an unprecedented level," according to MSRB Executive Director Lynnette Kelly Hotchkiss. "Investors and others can use the newly available documents and data to assess market demand and liquidity provisions, and have access to the identities of key parties to variable rate securities transactions," she stated in the release.

“The MSRB began providing interest rate information on EMMA about ARS and VRDO in 2009, after instability in these markets raised significant disclosure and market transparency concerns,” the release stated.

Hotchkiss added: "The MSRB is the only source of current, market-wide interest rates for these types of securities, and today, we are greatly enhancing the availability of key documents and data for municipal variable rate securities."

Lack of transparency about some ARS securities dogged many investors when, during the financial crisis, some of the issuing banks failed to provide auctions as  promised to buyers, leaving investors effectively stuck with securities that had turned illiquid. Some of the banks have since settled with investors.

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