The ARS Settlement Agreement: What You Need to Know
The ARS settlement agreement is an important legal document that affects thousands of investors who were caught up in the auction rate securities (ARS) market collapse of 2008. This agreement provides a way for investors to recover some of their losses and move past the turmoil of the financial crisis.
What is an auction rate security?
An auction rate security is a type of bond that has a variable interest rate, which is set by periodic auctions. These securities were marketed as safe and liquid investments, but they became illiquid and worthless during the financial crisis.
Why did the ARS market collapse?
The ARS market collapsed due to a lack of buyers at the auctions that set the interest rates. Many financial institutions that once provided liquidity to the market withdrew, causing the auctions to fail and the market to freeze.
What is the ARS settlement agreement?
The ARS settlement agreement was reached between the Financial Industry Regulatory Authority (FINRA) and many of the financial institutions that sold ARS to investors. The agreement requires these firms to buy back ARS from investors at par value.
Who is eligible for the buyback?
The buyback only applies to investors who held ARS before the market collapse in February 2008 and who have not been able to sell them since. Eligible investors include individuals, corporations, trusts, and non-profits.
How much can investors expect to receive?
The amount that investors will receive depends on the terms of the settlement agreement and the value of their ARS. Investors can expect to receive par value for their ARS, which is the price they paid for the securities. However, some investors may receive less if their ARS have declined in value.
What happens if investors do not participate in the buyback?
Investors who do not participate in the buyback will continue to hold their ARS. They may be able to sell their ARS on the secondary market, but this is not guaranteed and may result in a loss.
Conclusion
The ARS settlement agreement provides a way for investors to recover some of their losses from the ARS market collapse. Investors who are eligible for the buyback are encouraged to participate in order to receive par value for their ARS. If you held ARS before the market collapse in 2008, contact your financial advisor or the financial institution that sold you the securities to determine your eligibility for the buyback.