WASHINGTON — Erik R. Sirri, former director of the Securities and Exchange Commission’s trading and markets division, will oversee the Municipal Securities Rulemaking Board’s muni market trade and pricing study, the MSRB announced Thursday.
Sirri, a professor of finance at Babson College, was director of the SEC division during the financial crisis, from September 2006 through April 2009.
He testified about muni issues several times before congressional committees in early 2008, at one point warning about the lack of price transparency in the auction-rate securities market and saying SEC staff would press the MSRB to require dealers to report the same kind of ARS information reported in Treasury auctions.
Sirri also served as the SEC’s chief economist from 1996 to 1999 and was an assistant professor of finance at Harvard Business School from 1989 to 1995.
“Erik’s deep experience in trading activity and the capital markets as a whole will help the MSRB analyze whether pricing mechanisms and liquidity in the market could be improved with higher levels of pre-trade price transparency,” said executive director Lynnette Hotchkiss. “We are thrilled to be working with Erik and look forward to reviewing with our board members initial findings from the study later this year.”
Pre-trade price transparency refers to the prices at which market participants are willing to buy and sell munis in the secondary market. A key area of interest is the bid-ask spread, or the amount by which the asking price exceeds the bid, sources said. The preliminary findings of the study may be available as early as August, an MSRB spokesperson said.
The board’s study of municipal market structure and trading, which is expected to use muni trading data to examine transaction costs, price dispersion and other muni bond issues, was first announced by SEC commissioner Elisse Walter at a hearing on munis held here in December.
Walter is leading an SEC review of the market that will result in a report with recommendations on whether the agency should seek legislation, rules or changes in market practices to obtain disclosure or other improvements. During the December hearing, which she chaired, Walter warned that there is often no way of knowing the appropriate price of a muni bond, particularly in the secondary market if it has not been recently traded.
She also pointed out that while munis currently are traded in an over-the-counter, decentralized, dealer-intermediated market, this has not always been the case. In the 1920s, up until 1929, municipal bonds were actively traded on the New York Stock Exchange.