WASHINGTON — The Municipal Securities Rulemaking Board has proposed rule changes that would discontinue the practice of masking the exact par value of large municipal bond trades disseminated on a near-real time basis over the EMMA system.
The board has asked for market participants to submit comments on the proposed changes to its Rule G-14 on reports of sales and purchases by July 2.
Currently, muni bond trades of more than $1 million are designated as “1MM+” on the board’s EMMA system until five days after their execution.
That designation stemmed from industry concerns that, given the fact that many securities were infrequently traded, it might be possible to identify institutional investors and dealers trading these bonds if their exact par value were included in trade reports. The fear was that reporting the exact size would reveal information about a dealer’s inventory and allow other dealers to trade against that dealer’s position, reducing the incentive for dealers to take large position.
But in January, the Government Accountability Office published a report on the muni securities market structure, pricing and regulation warning that individual investors generally have less information about transaction prices than institutional investors.
Institutional investors told GAO that even though the size of large trades was initially masked by the MSRB’s trade reporting system, they typically were aware of the amount and the price of these large trades through their relationships with broker-dealers.
The MSRB decided to make changes in its trade reporting as a result.
“The MSRB believes disseminating the exact trade size of all transactions will help achieve our goal of ensuring the fairest and most accurate pricing of municipal securities transactions by providing all market participants with equal access to transaction information,” said MSRB Executive Director Lynnette Kelly.