How often is an arbitrage rebate calculated?

The frequency of calculating arbitrage rebate is typically every five years and at final maturity of the bonds. This is based on the requirements set by the Internal Revenue Service (IRS) for tax-exempt bonds. The arbitrage rebate pertains to the excess investment earnings that a governmental entity earns on the proceeds from tax-exempt bonds over what it pays in interest on those bonds.

The calculation every five years allows issuers to comply with regulations without unduly burdening them with annual calculations, while also ensuring that they fulfill their obligations before final maturity. At the final maturity date, a final calculation is crucial to confirm that all arbitrage profits have been accounted for, ensuring that the issuer is in compliance with IRS rules and avoids any penalties. This balance allows for appropriate oversight and adherence to regulations while recognizing the practicalities involved in bond management.