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What is the Methodology for the Calculation of the SIFMA ARS Indices?

Based on the selection criteria for inclusion in the SIFMA ARS indices, the Indices will be calculated by:

• Identifying qualifying securities for inclusion each week based upon a given set of parameters, including:
  • Tax Status
  • Ratings
  • Frequency of auction
  • Deal size
  • State of issuance
  • Debt/preferred
• An initial calculation will then be completed to determine one standard deviation.
• Issues with reset values that fall outside of (+ or -) one standard deviation are excluded from the final calculation.
• The actual number of issues that make up the particular SIFMA ARS Index will vary over time as issues are called, converted, mature or as new issues come to market. In addition, if changes to an issue occur that violate the established criteria, that security will be dropped from the relevant Index.

An ARS Index Example

Presented here is a simple example of how an ARS index calculation works. The example and numbers presented are hypothetical and used for illustration of the SIFMA ARS index calculation and reporting. They are not based on an actual weekly index calculation, nor are they intended to represent one.

• In a given week, the rates of the Tuesday and Wednesday auctions of the ARS programs are submitted to the index agent, Thomson Municipal Market Data. For simplicity, in this example, assume there are 1,000 submissions to the 7-day index calculation for the week.
• The index agent then determines how many of the 1,000 submissions in the example meet the criteria. In this example, the index agent determines 900 meet the criteria.
• The index agent then calculates an average value from the eligible auction rate securities. In this example, based on the 900 qualifying submissions, the calculation results in a 2.55 percent index value.
• According to the methodology described in the previous section, the index agent then removes those securities whose values are more than one standard deviation from the initial index value or calculated average. In this example, 100 securities fall more than one standard deviation from the average, resulting in the final index calculation based on 800 auction rate securities.
• The index agent then runs the calculation again, this time on the 800 securities, excluding those securities more than one standard deviation out. The recalculated index value is now 2.60 percent which represents the reported index value for the week.

• The weekly index report would include the index criteria, the index methodology, the final index value, the high and low rates within the standard deviation, one standard deviation, number of qualifying issues and the total par amount of securities represented by the index. You will find the same information for historical or previous periods since the inception of index series. Previous or historical date reports may be found by clicking on 'Select an Index Date' and choosing the desired date. You may also find the entire history of reported information for a specific index by clicking on 'Index Name'.

Is there a Contingency for Insufficient Data to Calculate an Index for a Particular Period?

Tax-Exempt Indices: Provision has been made for the unlikely event there would not be enough issues to calculate one of the tax-exempt indices. Under that circumstance, MMD would calculate a historical volatility of the SIFMA Municipal Swap Index, and would use an implied volatility to derive a rate for the affected Index. This derivation would be based upon the correlation of the broader SIFMA ARS Index to the SIFMA Swap Index.

Taxable Indices: Provision has been made for the unlikely event there would not be enough issues to calculate one of the taxable indices. Under that circumstance, MMD would calculate a historical volatility of one-month LIBOR, and would use an implied volatility to derive a rate for the affected Index. This derivation would be based upon the correlation of the broader SIFMA ARS Index to one-month LIBOR.

What Data Items are Used to Calculate the SIFMA ARS Indices?

The following data items are collected for the SIFMA ARS Indices calculations:

Accrual Method:

The convention used to calculate interest accrual – actual to actual, 30 days to 360 days, actual to 365 days, or actual to 360 days.

Auction Agent:

The entity that serves as the auction agent for the ARS.

Auction Day:

The day of the week the auction is held. Excludes auctions occurring on a calendar date, rather than on a specific day of the week.

Auction Frequency:

The time interval between auctions for the ARS issue – every 7 days, 28 days or 35 days.

Auction Rate:

The current auction interest rate of the issue.

Auction Settlement Date:

The day of the week the auction is settled.

Capital Gains:

Whether the issue includes or is subject to capital gains.

CUSIP:

CUSIP stands for Committee on Uniform Securities Identification Procedures. The CUSIP is a unique identifying number for the ARS, within a standard framework. The number consists of nine characters (including letters and numbers) that identify a company or issuer and the type of security.

Dated Date:

The effective date the new ARS came to market.

Insurance Status:

Whether the issue carries bond insurance and, if it does carry insurance, the name of the insurance provider.

Interest Payment Date:

The frequency of the interest payment – for example, 28 days, 35 days, weekly, monthly, quarterly semi-annually, or annually.

Lead Manager:

The broker dealer that serves as the lead manager/underwriter of the ARS issues.

Maturity Date:

The date the issue matures.

Name:

Names of the issuer, the specific ARS issue, and the borrower, if any.

Ratings:

The issue’s rating by the three major credit rating agencies, S&P, Moody’s and Fitch. The rating will indicate whether it is a rating on a credit enhanced basis or not. If the ARS issue is credit enhanced, the underlying rating is provided.

State:

State of domicile of the ARS issue.

Tax Status:

Whether the ARS issue is taxable, dividends-received-deduction (DRD), or tax-exempt, and if the issue is or is not subject to the Alternative Minimum Tax.

Tranche Size:

The current notional amount of the issue.

Type of Issue:

Debt or preferred.

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