UBS AG is the latest firm to reach a settlement over its sale of auction rate securities.

The firm said it has reached a deal, in principle, with the New York state attorney general, the Massachusetts Securities Division, the US Securities and Exchange Commission, and other state regulatory agencies represented by North American Securities Administrators Association, to restore liquidity to all remaining clients’ holdings of auction rate securities. The firm has also agreed to pay a fine of US$150 million — US$75 million to the state of New York and US$75 million to other state regulatory agencies — while neither admitting nor denying allegations of wrongdoing.

Under the agreement, UBS has committed to purchase a total of US$8.3 billion of ARS, at par, from most private clients during a two-year time period beginning January 1, 2009. Private clients and charities holding less than US$1 million in household assets at UBS will be able to avail themselves of this relief beginning Oct. 31, 2008. Also, starting in mid-September, UBS will provide loans at no cost to the client for the par value of their ARS holdings.

In addition, UBS has also committed to provide liquidity solutions to institutional investors and will agree from June 2010 to purchase all or any of the remaining US$10.3.billion, at par, from its institutional clients.

“Today’s solution provides further relief, beginning in September, to investors who have been understandably frustrated by the industry-wide failure of the ARS market. Our leading position in supporting the market and providing liquidity is clear, and now, we are the first firm to give all clients — private, corporate and institutional the opportunity to be made whole,” said Marten Hoekstra, head of UBS Wealth Management Americas.

The full cost of the proposed settlement is estimated to be in the range of US$900 million on a pre-tax basis, to be booked in the second quarter results.