WASHINGTON — In a bid to boost muni market transparency, the Municipal Securities Rulemaking Board is proposing to post on its online Electronic Municipal Market Access system dollar prices and yields for transactions between dealers.
EMMA currently displays such information only for muni transactions between customers and dealers.
The board’s proposal, filed with the Securities and Exchange Commission late last week, would amend Rule G-14 on reports of sales and purchases. It comes less than a week after the Government Accountability Office released a report, required by the Dodd-Frank Act, concluding that institutional investors generally trade at more favorable prices than individual muni investors in the secondary market.
The GAO cited price discrepancies in “interdealer trading” as a possible explanation, since municipal securities often “pass through a chain of dealers before being placed with investors.”
“The MSRB continues to expand the amount and type of information available to municipal market participants,” Lynnette Kelly, the board’s executive director, said in statement. “We are seeking to display interdealer yields to provide parity with information available for customer transactions.”
Under the proposal, the board’s Real-Time Transaction Reporting System would be reprogrammed to include a yield for most interdealer transactions, “thereby improving the usefulness” of data disseminated to RTRS and displayed on EMMA, which is an RTRS subscriber, the MSRB said.
Currently, for most interdealer transactions, dealers report final money — which includes commissions or fees — par amount, and accrued interest to the board’s Real-Time Trade Matching System, or RTTM, and that information is forwarded to RTRS for trade reporting. RTRS computes a dollar price from those values, not a corresponding yield.
But for customer trades, dollar price and yield are reported, resulting in an information “disparity,” the board said.
Several observers welcomed the proposal, saying it would promote overall market transparency.
“Why this calculation hasn’t been shown before has always been a mystery to me,” Matt Fabian, managing director at Municipal Market Advisors, wrote in an email. “Plus, with an increasing share of trading this year and late last year being conducted between dealers, it makes sense to show the calculation.”
Interdealer transactions accounted for almost 22% of total par traded in December, and reflect 24.2% of par traded so far in January, according to Fabian’s analysis.
Another observer echoed that view.
“I think it’s a good thing and part of a trend toward more information for more of the parties that are involved in the marketplace,” said Christopher Mier, managing director at Loop Capital Markets LLC in Chicago.
But an issuer said the board’s move would benefit secondary market investors more than issuers, giving them information they currently lack: the prices at which a muni trades among dealers before it is sold to an investor.
“There are price changes along the way,” said Wisconsin capital finance director Frank Hoadley.
“To me, it’s part of the fog of pricing,” said Hoadley, who has called for more transparency in the primary market.
A dealer group said the board’s proposal would have a minimal impact, since dealers and institutional investors already have access to this information from other sources, such as Bloomberg.
“I suppose this would make it available to the general public, which is the thrust of EMMA anyway,” said William Daly, senior vice president of government relations for Bond Dealers of America.
An industry group applauded the board’s effort to update G-14 and said it was analyzing the proposal.
“SIFMA is in favor of additional transparency when it would be helpful to the market, particularly if no additional burdens are put on industry members,” Leslie Norwood, managing director and co-head of the muni securities division of the Securities Industry and Financial Markets Association, said in a statement.
The proposed changes must be approved by the SEC, which will float the proposal for public comments.
The MSRB asked for the amendments become effective April 30.