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Secondary Trading Up in 3Q

WASHINGTON — Secondary market trading volume surged to more than $851 billion in the third quarter of 2011, the highest so far this year, but still fell 8.5% short of the almost $931 billion reached during the same period last year, the Municipal Securities Rulemaking Board said Wednesday.

In its report summarizing third-quarter muni market statistics, the board’s data also showed retail investors withdrew as interest rates and yields dipped to historic lows.

“The smaller retail presence diminished,” said Richard Ciccarone, managing director and chief research officer at McDonnell Investment Management in Oak Brook, Ill., who reviewed the MSRB report and compared it to similar data from the second quarter. “It meant that the retail buying appetite trailed off as yields were at their lowest point in the past 10 years.”

In particular, Ciccarone noted, trades of less $100,000 or less accounted for 7.5%, or an estimated $1 billion par amount, of the average $13.3 billion of daily muni trades in the third quarter — a decrease from 8.2%, or $1.07 billion par amount of the average $13 billion of daily trades in the second quarter.

At the same time, he noted, the largest muni buyers — those who traded in par amounts of more than $2 million — increased to an average daily $9.607 billion par amount, or 72.2%, in the third quarter, from an average daily $9.177 billion par amount, or 70.6%, in the second quarter, according to the MSRB’s reports.

“So it became a more heavily institutional market,” Ciccarone said.

Separately, the MSRB fielded 25,463 continuing disclosure documents in the third quarter, a 3% spike from the same period in 2010, the report said. Of that third-quarter total, 11,885, or 46.7%, of the continuing disclosures were bond call disclosures, according to the report. Another 6,184, or 24%, were audited and unaudited annual financial statements.

Quarterly and monthly financial disclosures ranked fourth, with a total of 2,005, or 7.9%.

 The MSRB also received 318 submissions, or roughly 1%, reporting failure to provide annual financial information, the report said. On balance, issuers showed slight improvements from the second quarter in several statistics related to delinquencies, technical defaults, and bankruptcies.

In the third quarter, for example, issuers filed the following: 29 disclosures related to non-payment related defaults (versus 49 in the second quarter); 21 disclosures about bankruptcies, insolvencies, or receiverships (versus 11 in the second quarter); 15 submissions related to unscheduled draws on credit enhancement (versus 11 in the second quarter); 8 communications from the Internal Revenue Service (versus 11 in the second quarter); and 29 principal and interest payment delinquencies (versus 68 in the second quarter), according to the MSRB’s second- and third-quarter reports.

One exception was unscheduled draws on credit enhancements, which rose slightly from 11 in the second quarter to 15 in the third, according to the board’s reports. “Those are interesting findings, quite frankly,” Ciccarone said.

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