The regulator of the municipal bond market wants to know if it should begin gathering important pricing data for specific securities issued by state and local governments.
Per a news release on Monday, the Municipal Securities Rulemaking Board is seeking input on the possible advantages and downsides of obtaining pre-trade data from brokers and other public finance market players to increase transparency.
In contrast to equities, Muni bonds are issued by state and municipal governments primarily to fund infrastructure projects. There is no system in place in the over-the-counter market to compile quotations and make the price difference between the highest price a is willing to pay for a particular asset publicly available. Its size is mostly to blame for this. Compared to the 8,000 securities listed on US stock exchanges, there are around one million in the muni market.
When most munis don’t trade that much, having a two-sided market will be extremely difficult for them, according to Jesy LeBlanc, co-founder of TRADEliance. This consulting firm specializes in trading operations and compliance.
According to the announcement, the MSRB started a similar initiative in 2013, but “no formal rulemaking” resulted from it. May 16 is the deadline for comments on the most recent initiative.
The US Securities and Exchange Commission made several suggestions in a 2012 study to increase pre-trade pricing transparency. According to the paper, commissioners might mandate that electronic platforms make quotations on bonds traded regularly or in large quantities publicly available.
However, technology has made it simpler for dealers of muni bonds to obtain pricing from various sources before trading. Currently, dealers usually post quotations online, but the public cannot access the information; only participating banks, asset managers, and licensed investment advisers may access it.
“Over the past 15 years, there has been some positive progress in providing traders with more information, but that hasn’t really trickled down to the retail side, and I just don’t see an easy way for that to occur,” LeBlanc said.
The public is informed of muni-bond trades 15 minutes after they are performed through the MSRB’s free Electronic Municipal Market Access website or EMMA. The SEC authorized a rule change proposal in September that would have mandated that most bond trades be disclosed within one minute. No announcement has been made regarding the effective date.
Since electronic trading has grown and post-trade pricing has become more transparent, Muni-bond trading expenses have decreased. The MSRB reports that as of March 2023, the average discount between the price a consumer pays and the price a seller receives for security dealers acting as a middleman dropped from 73 basis points in 2019 to 57 basis points.
