Trades Up, Amount Down in 2008

WASHINGTON - The dollar amount of municipal securities traded in 2008 declined from the previous year, while the number of trades increased, the Municipal Securities Rulemaking Board will show in a municipal bond trading Fact Book it plans to release Tuesday.

The book, which contains the first compilation of trade data collected through the MSRB's Real-Time Transaction Reporting system, also reveals that short-term California notes sold primarily to retail investors were by far the most actively traded debt last year. Securities from the state's $3.8 billion note transaction in October traded 14,563 times, nearly three times more than bonds from any other deal, according to the MSRB.

While the report draws no specific conclusions, MSRB general counsel Ernesto Lanza and research director Marcelo Veiera said the data anecdotally supports the notion that retail investors have become more important.

Though retail customers are playing a larger role in the municipal market, the data indicates that the total amount of daily trades skews in favor of very large, possibly institutional, accounts. For instance, 2,581 of the roughly 3,796 average daily trades of general obligation bonds were for trades of $1 million or more, and most of those were above $2 million.

In contrast, retail investors are typically said to be tied largely to trades of $100,000 or less, which only accounted for 391 of the 3,797 trades of GOs traded during the average day last year.

The average size of a trade for a non-dealer customer was $847,610 per day across all four quarters in 2008, compared to about $1.079 million per day per quarter the previous year.

But the average daily size of orders for customers purchasing securities fell to $491,282 across all four quarters of last year, much lower than the average purchase order of $733,808 during the same period in 2007.

The data also shows that more than half of the average day's trades take place in the afternoon, while the trades with the heaviest volume typically occur in the morning.

In addition, it shows that five dealers, not identified, accounted for 46% of the distribution of customer trades in 2008, compared to 54.3% in 2007, possibly reflecting the consolidation of dealers in the industry.

More generally, the Fact Book shows that the daily par amount of securities traded in each quarter of 2008 averaged $21.793 billion, down from $26.528 billion per day across each quarter of the previous year.

At the same time, there was an average of 43,383 daily trades across each quarter, up from 36,437 per day across each quarter the previous year.

Meanwhile, the number of unique securities traded per day in each quarter was down to 13,666 in 2008 from 14,628 in 2007.

For variable-rate securities, the data shows that an average of $12.148 billion was traded each day in 2008, down from $18.305 billion in 2007.

The decline in the amount of variable-rate trades compares to about $7.790 billion of fixed-rate debt traded on average each day in 2008, up from $6.534 billion the previous year.

Of the variable-rate debt traded in 2008, customers bought an average of about $5.997 billion per day, down from $8.494 billion per day the previous year. They sold about $5.194 billion of the securities on a daily basis, down from $7.914 billion the previous year. Interdealer trades accounted for $956.4 billion of the daily par amount of variable-rate debt traded last year, far lower than the daily average of $1.897 billion in 2007.

Of fixed-rate debt, however, customers bought $3.548 billion on average each day, up from $3.017 in 2007. They sold $2.111 billion on average each day, up from $1.641 billion in 2007, while inter-dealer trades accounted for $2.132 billion of the daily par amounts, up from $1.875 billion.

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