Increased bid-wanteds, live quotes mean more transparency in muni market

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The number of responses for bid-wanteds and commitments to buy those municipal securities, increased from 2015 to 2018, indicating more transparency and involvement in the municipal market, according to a report.

From June 2018 to November 2018, there was a median of five responses per requests for quotes responses — also known as bid-wanteds — across two alternative trading systems (ATS), up from a median of three from February 2015 to May 2015, according to a report released by the Municipal Securities Rulemaking Board on Tuesday.

Simon Wu, MSRB chief economist, found more live quotes and bid-wanteds in 2018 compared to 2015.

“The increase in the response rate is in line with the information gathered anecdotally from electronic platform operators, suggesting that more market participants are increasingly involved in the RFQ process,” according to MSRB Chief Economist Simon Wu and other researchers wrote in the 28-page report, titled “Municipal Securities Pre-Trade Market Activity: What Has Changed Since 2015.”

The time frames were picked because they appeared "normal," he said.

The MSRB report analyzed quote data from those periods from two ATS, which it did not name, that voluntarily provided the data for the study.

An ATS is an electronic trading system that is not regulated but is a venue for matching the buy and sell orders of its participants. Pre-trade information indicates the size and price of prospective trading interest in specific muni securities. Access to this information is limited to market professionals and some data may be only available to market professionals involved in potential trades.

The report also found trade prices were more clustered around the best offer quotes in the referenced time period in 2018 compared to 2015, which implies a further decline in the dispersion of trade prices for inter-dealer trades, the MSRB wrote.

With more live quotes and requests for quotes, there is a tighter cluster to get a better price and more transparency, Wu told The Bond Buyer.

Live quotes are a commitment to buy or sell a specific quantity of a muni security at a stated price. They are a bit different from RFQs because they are voluntary.

The monthly average number of RFQs grew to 199,000 from 174,000, a 14% increase from 2015, the report said. The growth rate for responses to RFQs was even higher, at 56%. The number of live quotes also increase drastically to 39.3 million per monthin 2018 from 27.7 million in 2015.

The report also confirms results from a similar report on 2015 data conducted in 2018 that the execution rate on an ATS platform was higher when more responses were received. Live offer quotes may have increasingly provided a valuable pricing indicator to the market, whether a bond was traded on an ATS or elsewhere, the MSRB said.

Though the report uses data only through 2018, Wu said the coronavirus pandemic had an effect on the amount of RFQs. He said, after talking to market participants, there were fewer than five RFQs in March 2020.

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