MSRB stands by its study on shrinking spreads

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WASHINGTON — The Municipal Securities Rulemaking Board says it stands by its study of shrinking secondary market spreads following a Bond Dealers of America letter critical of the study's assumptions and conclusions.

MSRB President and Chief Executive Officer Lynnette Kelly said Monday that although the MSRB appreciates feedback like that provided by the BDA last week, it believes its July study by the board’s Chief Economist Simon Wu provided an accurate analysis of why dealers have seen their secondary market spreads shrink dramatically since 2005.

Wu’s study found that the advent of electronic trading platforms and the increased transparency brought about by regulation have been the driving forces behind the effect.

The BDA comment letter pointed to more macro factors at work, particularly the historically low interest rate environment that has existed over much of the past decade. The BDA told the MSRB that the board should be cautious in using the report as a benchmark for future research or as the basis for rulemaking.

“The goals of the report by our chief economist are to provide information to the market on transaction costs and promote further research,” Kelly told The Bond Buyer Monday. “There are of course, many factors that could contribute to the decline in muni spreads, and the BDA paper offers other perspectives.”

The BDA comment letter was not sent as part of a formal request for comment, but rather on the group’s own initiative after having discussed it with member firms. Kelly said she encouraged more research on the topic.

“We look forward to continuing our research into this important area, and encourage others to do so as well," she said. "Such research, analysis and debate is central to the MSRB’s mission to protect investors and issuers, and promote a fair and efficient municipal market.”

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Securities law Secondary bond market MSRB rules Interest rates MSRB BDA Washington DC