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Eaton Gets Break on Auction-Rate Securities


Eaton Vance has received a no-action letter from the Securities and Exchange Commission that will permit it to provide a new auction-rate security known as Liquidity Protected Preferred Shares.

Unlike other auction-rate preferred shares, these new LPPS would operate based on liquidity backing from an individual bank or a group of banks, pay a dividend rate based on a rate set by a remarketing agent, and reset the dividend rate each week.

Now the firm can safely operate without the fear that the SEC might recommend enforcement or penalize money-market funds that decide to invest in the new LPPS. "The hope is to open up a much larger market for LPPS than ever existed for auction-rate preferred shares," Payson Swaffield, chief income investment officer at Eaton, told The Wall Street Journal.

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