How to Purchase Auction Rate Securities

Here's what you need to know.

Following my article on the attractiveness of auction rate securities and variable rate demand notes, I have received several inquiries about how to buy these securities.

Here is what I know - these securities are ordinarily auctioned every seven days or every month (weekly reset or monthly).  They are either fully taxable or have similar tax attributes to municipal bonds (depending on the tax attributes of a securitized pool of assets).  They can be issued by banks, funds, utilities, etc., which use these funds to leverage their investments, but there is ordinarily recourse to the underlying pool of assets.

Access to these markets is pretty limited.  First, you need to play in $25,000 increments and sometimes in $100,000 increments.  As if that isn't enough to close the pool of potential purchasers, these are ordinarily available only through a brokered account (Merrill Lynch, Goldman) and aren't going to offered by ETrade or Schwab or Ameritrade.   If you happen to still have a brokered account, good luck hearing from your broker about your options.  He or she isn't likely to have any interest in pushing these products as they don't generate any commissions on this. 

So, you see the problem here is that these securities really are limited to those who have access and good access.

If you want to know more and are a serious investor in these, feel free to contact me as I know a few brokers who are very helpful and will be glad to help serious purchasers get into these markets.

Jason Rodgers
Jason Rodgers: Jason Rodgers was an experienced research analyst for a major bank prior to retiring to run his own investment consultancy in beautiful Lihue, Hawaii. Jason contributed articles to BestCashCow from 2008 to 2014.

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  • JP Dieckert

    February 25, 2008

    Can you recommend a broker that I can use to purchase tax exemkpt auction rate bonds?

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