Auction Rate Securities (ARS)
Long Term variable rate bonds, tied to short-term interest rates
Long-term maturities of 20-30 years, interest rates are determined using a Dutch auction method at predetermined short-term intervals, typically 7,28, or 35 days
Uses a competitive bid process where the lowest bid rate at which all of the bonds can be sold at part is used to establish the new or "reset rate"
Any customers that bid above the clearing rate receive no bonds and those that bid at or below the clearing rate receive the bonds at that rate
Interst paid in the current period is based on the interst rate reset on the prior auction