Electronic trading is gradually gaining more influence in the municipal bond market, leading more market observers to recognize the value that e-trading can bring.
"The municipal bond market continued its slow but steady acceptance of electronic trading in the second quarter, with 20.7% of volume executed through four trading venues, up nearly 3 percentage points from a year ago and up 10 basis points
There are two primary catalysts for the growing adoption of e-trading: consolidation and all-to-all trading, the report noted.
Market participants cite OpenTrading's all-to-all expansion into non-taxable munis and ICE's recent acquisition of MarketAccess as two market moves that will increase adoption, according to the report.
All-to-all trading, which allows "any seller to trade with any buyer, as opposed to only clients trading with dealers, has proven its value in other markets, most notably corporate bonds," Kevin McPartland, head of market strategy and technology research at Greenwich Coalition, said in an interview. "Given the unique liquidity challenges of the municipal bond market, this approach to trading is likely to see some growth in the coming months."
On the other hand, platform consolidation "catalyzes everyone to take a fresh look at the landscape, potentially yielding new innovation which hopefully drives new e-trading growth," he said.
While e-trading growth is positive, it's also slow. The unhurried spread of portfolio trading in munis can be attributed to the complexity of the muni market.
"Compliance complexities of allocating executions fairly across multiple client accounts" create a barrier for investors to easily trade munis compared to other assets, according to the Coalition Greenwich report.
Even though these complexities exist, electronic platforms credit e-trading with helping to simplify some of the market's intricacies.
Electronic trading is addressing fragmented sectors, scarce financial data and opaque pricing issues in the market.
"By making bond data more widely available and digestible, these systems can offer significant efficiency gains via greater transparency, improved inventory management and access to a wider range of liquidity pools and counterparties," according
Moreover, the continued modernization and introduction of new technologies to the muni market is a "foundational piece" for encouraging the development and spread of e-trading, said Martin Mannion, managing director and co-head of TD Securities automated trading.
"Technology on both the trading side and the data side helps to create the sort of environment or ecosystem where you can electronically trade [muni bonds and exchange-traded funds]," Mannion said.
Consequently, that technology also provides firms with the ability to scale more efficiently and "price more of the orders that come into market in a more systematic way through automation," Mannion said. All of this ultimately "reduces the cost of execution, … So your bid-ask and your effective spread for transacting ends up declining quite dramatically."
While e-trading growth is gradual in the municipal market, it has strongly influenced retail investors and separately managed accounts. Odd-lot trading makes up the vast majority of trades in the muni market, peaking at 85.5% in 2025, according to the Municipal Securities Rulemaking Board.
"Any market participant who was providing liquidity as a market maker in the odd lot part of the business has either fully invested in technology or is trying to catch up," Mannion said.
"As the markets become more efficient, we're seeing more algo traders come into the space," Principal Asset Management portfolio manager James Welch said. "I see electronic trading continuing its rise percentagewise. We tend to be more art than science in our asset class, and [e-trading] brings more science to the asset class. So, I like electronic trading [for the muni market]."
