An auction rate security (ARS) is a type of long-term bond issued by a corporation or municipality. ARS differ from traditional bonds in one key respect: instead of paying a fixed interest rate for a long time (for example, a minimum of 10 and sometimes 30 years), the ARS interest rate is often “dumped” through a process known as a Dutch auction. , which is held every 7, 28 or 35 days. At every Dutch auction, ARS holders are given the opportunity to sell ARS. ARS issuers/borrowers benefit because ARS can provide them with long-term financing, but at significantly lower rates than traditional long-term bonds. Buyers of ARS benefit because, given their short-term nature, ARS offers money market fund liquidity, but at a higher rate of return. But in February 2008, several Dutch auctions “failed” due to a lack of buyers, as a result of which ARS investors’ money was frozen in their accounts. As a result, many investors filed class-action lawsuits against banks and brokerages that encouraged them to invest in ARS.