ATS data, compliance guides released by MSRB

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PHOENIX - The Municipal Securities Rulemaking Board on Thursday released data showing the extent to which alternative trading systems are used in the municipal market as well as guides to help with rule compliance.

The MSRB released statistics on alternative trading system (ATS) activity, which it has collected since July 2016.

Covering the 12 months that ended Sept. 30 2017, the data shows that 59% of trades between dealers — and 29% of par volume traded — were executed on an ATS. The data indicates that about 90% of all ATS trades were transactions of $100,000 or less, which are typically considered to be retail-sized trades.

While regulators and market observers have understood the general tendencies of ATS activity, this release marks the first formal publicly available measurement.

“Our data provide the market’s first view of the extent to which ATSs are used in the muni market,” said John Bagley, chief market structure officer at the MSRB. “These platforms, which disseminate quotes and expand access to bond inventories, can help improve liquidity and market efficiency. They can also help dealers obtain the best pricing for investors.”

The data also show that, of the interdealer trades not executed on an ATS, 34% were conducted directly between dealers and 7% went through a broker’s broker, also known as a voice broker.

The MSRB will continue to publish data on interdealer trading and ATS trades in the municipal market on an annual basis.

The board also released two publications to describe the different types of communications it releases for the market and the intent of those different categories of document. The board has separated them into two broad categories: “compliance information” and “market leadership” information.

The release of these publications is another step in the MSRB’s stated goal of pivoting away from federally-mandated rulemaking that had occupied much of its time over the past several years and beginning a renewed focus on helping broker-dealers and municipal advisors comply with its existing rules.

“As a self-regulatory organization, it is important that we effectively communicate the MSRB’s intent with respect to regulatory and market issues,” said MSRB executive director Lynnette Kelly. “Our compliance activities are focused squarely on MSRB regulations and will be informed by stakeholder engagement. We have formed an external advisory group and will be continuing to seek input from municipal securities dealers and municipal advisors to ensure that our resources and tools reflect that input.”

The compliance information document discusses four types of releases: interpretive guidance, compliance advisories, compliance resources, and regulatory reminders. Interpretive guidance is meant to clarify the application of a rule and provide more prescriptive information about obligations and prohibited conduct under that rule. Compliance advisories are aimed at assisting regulated entities in assessing their compliance policies and processes. Compliance resources highlight key MSRB rule provisions or try to enhance understanding of a rule by providing a checklist, sample template, fact sheet, or other example. Regulatory reminders simply highlight existing responsibilities.

Under the “market leadership” umbrella, the MSRB will release market advisories, reports, issue briefs, and public commentary. Market advisories are intended to bring public attention to market practices, products or trends with an eye toward fostering dialogue and solutions to problems. Reports examine muni market topics and provide data and objective analysis. Issue briefs summarize market issues and developments affecting the market. Public commentary aims to “leverage the MSRB’s unique perspective and expertise as the municipal market’s self-regulatory organization to contribute to discussions affecting the market,” the document said.

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