Feb. 15 (Bloomberg) -- U.S. banks and securities firms may be forced to disclose more information on bidding for auction- rate bonds after dealers stopped buying the securities, triggering more than $20 billion of failures this week that squeezed local governments nationwide.

The U.S. municipal bond market's main regulator, the Municipal Securities Rulemaking Board, plans to seek comment on whether dealers should reveal the number of bidders and disclose how often auctions fail in the $330 billion market for the securities, whose rates are set periodically at auctions, said Executive Director Lynnette Hotchkiss.

Banks including Goldman Sachs Group Inc. and Citigroup Inc. allowed more than 100 auctions to fail this week after they were unable to attract bidders and decided not to buy unwanted securities. The failure nearly doubled borrowing costs on $15 million bonds sold by Harrisburg International Airport in Pennsylvania to 14 percent, said executive director Tim Edwards. The Port Authority of New York & New Jersey's rate reset at 20 percent on $100 million of debt, up from 4.3 percent a week ago.

``Obviously, auction-rate trading is a big issue right now,'' Hotchkiss said in an interview late yesterday.

Auction-rate bonds are long-term debt with interest rates reset according to bids submitted to banks and securities firms every seven, 28 or 35 days. Banks stopped their typical practice of buying the securities for their own accounts to prevent failures after losses on debt linked to subprime mortgages led to downgrades of some of the bond insurers that back most auction notes.

Insurer Downgrades

As banks backed away from the market under the pressure of $146 billion in credit losses and writedowns, at least 129 auctions failed on Feb. 13. That's left investors who wanted to sell the debt unable to unload the securities and boosted interest costs for cities, hospitals and universities.

Zurich-based UBS AG will no longer buy auction-rate securities that fail to attract enough bidders, and Merrill Lynch & Co. in New York is reducing purchases, people with direct knowledge of the matter said this week.

Hotchkiss declined to detail disclosures that will be included in the notice because it hasn't been approved by the Alexandria, Virginia-based board. She said the notice for comment may be issued within two or three weeks.

Buyers including corporate treasurers held auction-rate securities as a higher-yielding alternative to cash equivalents such as certificates of deposits and savings accounts.

SEC Discussion

Providing more information on auctions, such as the amount of bids and sale orders, might help the market because it ``could allay some investor concerns about getting stuck holding a security,'' said Joseph Fichera, chief executive officer of Saber Partners, a New York-based adviser to local governments.

The staff at the Securities and Exchange Commission has talked with the board about enhanced disclosure of the auction process, Hotchkiss said.

The board began work in October on changing its trade reporting system to include the interest rate on auction bonds, not just the price. At that time, Frank Chin, chairman and head of the public finance group at New York-based Citigroup, the biggest underwriter of auction-rate debt, said disclosures on details of auctions beyond the rate would be the ``subject of additional dialogue with the SEC.''

The SEC enforces regulations of the municipal board. The commission's approval is required for any new rules.

Scant Information

The board began looking at ways to increase auction-rate disclosure at the request of the SEC, which in 2006 fined 15 banks a total of $13 million for using inside information to submit bids on auction-rate securities. Banks are allowed to continue the practice so long as they disclose to investors that they might bid, though they haven't been required to reveal if, or how much they paid at auctions or what the range of offers was.

Revealing the interest rate would help investors and issuers, Martha Haines, head of the SEC's Office of Municipal Securities, has said.

Investors have few publicly available sources of information on yields of auction-rate securities, beyond indexes published on the Web site of the Securities Industry Financial Markets Association, the bond market's trade group. The indexes are based on securities whose rates reset on Tuesday or Wednesday, and are published with a lag. The most recent indexes are for Feb. 6.

To contact the reporter on this story: Michael Quint in Albany, New York, at mquint@bloomberg.net.

Last Updated: February 15, 2008 05:14 EST