SEC Announces Muni Market Topics to be Discussed at Roundtable

The Securities and Exchange Commission on Thursday announced the topics it plans to cover during its April 16 Roundtable on Fixed Income Markets, with two of the four panels to focus on municipal securities.

Panel 1 will examine the characteristics of the muni market and how it has evolved in recent years. Panelists, are to be announced later, will discuss the levels of price transparency and liquidity in the market, as well as transaction costs for individual and institutional investors and the relationship between the primary offering process and secondary market trading.

The panel will also look at the role of alternative trading systems (online trading systems) in the muni market and whether they provide open access to traders or restrict participation to certain types of market participants. It will also discuss how important interdealer brokers are to the market.

Price transparency issues to be addressed will include whether and to what extent the pricing information available to broker-dealers differs from that available to institutional and retail investors.

The panel will look at trading patterns in the muni market and whether most munis trade infrequently in the secondary market.

Panelists also will address issues stemming from the primary offering process and transaction costs, including whether costs are higher for retail investors than institutional investors and how costs differ for various types of bonds.

A third panel will focus on the steps that could be taken to improve the transparency, liquidity, efficiency and other aspects of the structure of the muni market, including the recommendations in the SEC’s report on the market that was issued last summer.

Panelists are to consider how pre-trade transparency can be enhanced, what the impact would be if ATS’ were required to disseminate pre-trade pricing information, or interest in trading on their system.

“Should the commission consider regulatory initiatives that would encourage the use of transparent execution venues in the municipal securities markets, such as ATS’ or brokers’ brokers networks that publicly disseminate trading interest on their systems,” the SEC asked in its release. “For example, what would be the benefits and drawbacks of requiring brokers to affirmatively offer retail customers the option of exposing their orders on one or more of these transparent execution venues? Are there better ways to foster price transparency?”

The SEC wants panelists to discuss whether post-trade transparency can be enhanced such as through the reporting of yield spreads or the difference between the yield on the muni traded and the yield on an applicable benchmark security..

“Should investors be provided more information about the compensation of broker-dealers trading in a principal capacity?” the SEC asked in the release. “What would be the benefits and burdens of requiring the disclosure of dealer markups to customers?”

The SEC also wants to know if there should be a “best execution” rule for the muni market that would require brokers to seek to obtain the most favorable terms reasonably available for a customer.

The second panel will focus on current market structure for corporate bonds.

The fourth panel is to consider potential improvements to the market structure for corporate bonds and asset-backed securities.

The roundtable will be held at the SEC’s headquarters near Union Station.

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