Auction Rate Securities

An auction rate security (ARS) typically refers to a debt instrument (corporate or municipal bonds) with a long-term nominal maturity for which the interest rate is regularly reset through a Dutch auction. Statement of Financial Accounting Standard 157 defines fair value, which under the new guideline, is typically referred to as “mark to market” accounting. With Auction Rate Securities no longer being liquid, public companies began to write down their ARS holdings starting in the first quarter of 2008.