MSRB Fact Book Shows Growth of Smaller Trades

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WASHINGTON — Municipal market trades increased for the first time in three years in 2013, driven by retail-sized transactions.

The annual fact book released Wednesday by the Municipal Securities Rulemaking Board shows that par volume and number of trades moved in opposite directions from 2012 to 2013. Volume dipped to about $3.12 trillion from $3.23 trillion in 2012, while the total number of trades increased to 10.6 million from 9.7 million. In addition to the divergence between volume and total trade numbers, the report indicates that trades of less than $100,000 went up, and the average size of each trade declined from 2012 to 2013, MSRB director of research Marcelo Vieira said.

While MSRB doesn't have a size threshold between retail and institutional trades, many observers consider $100,000 to be the dividing line. Trades of $100,000 or less made up 83% of the market in 2013, up from 81% in 2012.

"One can make the case" from those numbers that retail trading has increased, Vieira said.

Municipal Markets Analysts' Matt Fabian said the change could be explained by the drop in variable rate demand obligations and auction rate securities resets, which have continued to trend down in recent years.

"For percent of trades, it's the decline in VRDO/ARS resets that's the biggest factor, plus a more limited trading flow in general" Fabian said.

The MSRB's EMMA website serves as the central depository for muni market information. MSRB Rule G-14 on reports of sales or purchases requires dealers to submit to the MSRB transaction data on all municipal securities trades with customers and with other dealers within 15 minutes of the time of trade, with limited exceptions. The MSRB said it publishes the fact book annually to provide a resource for itself as well as other regulatory agencies and the public. The board obtains some information on the characteristics of securities traded from Standard & Poor's Financial Services LLC and CUSIP databases furnished by CUSIP Global Services.

"The MSRB's annual fact book provides municipal market participants, policy makers, regulators, academics and others with historical statistics that can be further analyzed to identify market trends and activity over the last several years," the book's introduction states. "All of the MSRB's statistical reports support the MSRB's ongoing effort to educate the general public and market participants about the municipal market. The statistics also assist the MSRB's regulatory activities."

Many of the numbers captured on EMMA and reported in the MSRB fact book continued on their recent trajectories.

"2013 is really a continuation of trends that we've seen the last three or four years," Vieira said.

Par volume traded fell sharply from 2010 to 2011, and more modestly from 2011 to 2012 before declining again in the most recent figures. Tax-exempt bond volume fell to $2.71 trillion from 2.74 trillion, while taxable bond trades fell to $247.2 billion from $272.8 billion a year ago.

Taxable volume traded was more than $500 billion as recently as 2010.

The fact book also includes information on disclosure documents, which showed some signs of economic improvement for issuers from 2012-2013. Adverse tax opinion disclosure filings declined to 11 from 14 filings in 2012, and bankruptcy, insolvency, and receivership disclosures fell to 83 from 94. Bond calls made up 33% of all continuing disclosure submissions, while audited financial statements or comprehensive annual financials were the next biggest chunk at 21%. Rating changes made up 6% of continuing disclosures.

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