Muni trades tumble in 2019, lowest since 2006

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Trading volume dropped sharply in 2019, reaching the lowest level since 2006, according to the Municipal Securities Rulemaking Board.

The MSRB’s annual fact book, released Tuesday, showed a 14% year-over-year drop in the total number of municipal securities traded. The number of trades decreased to 8.75 million in 2019 from 10.17 million in 2018. The par amount of muni securities traded in 2019 dropped 2.5% from 2018. In 2019, $3.01 trillion traded compared to $3.09 trillion in 2018.

In 2006, the total number of municipal securities traded was 8.46 million.

Trade activity doesn’t tend to change significantly from year to year, said Marcelo Vieira, MSRB director of research.

“Some years you see some increase, some years you see some decrease,” Vieira said. “What really popped out this time around was the number of trades that was significantly lower than last year -- low enough to make us think about how low historically.”

Trades dropped by 14% in 2019, noted Marcelo Vieira, the Municipal Securities Rulemaking Board's director of research.

The decrease in trades was related to a decline in retail investor trades, Vieira said.

“The main driver of the decrease in municipal securities trading activity in 2019 was a decline in small trades consistent with a reduction of retail trading activity,” Vieira said in a press release. “Considering that institutional trading actually increased, we will continue to look into municipal investor behavior to see if we uncover any meaningful trends.”

Retail trades are trades that are $100,000 or less compared to institutional trades of $1 million or more. Retail trades were down 16.5% in 2019, while institutional trades increased by 3.9% compared to 2018.

The total number of trades from $0 to $100,000 decreased to 40,374 in 2018 to 34,738 in 2019. The total number of trades from $1 million to more than $2 million increased to 1,655 in 2019 from 1,592 in 2018.

Retail investors’ investment advisers are increasingly going to sophisticated separately managed accounts to let them decide how to manage their assets and monitor them, said George Friedlander, a municipal market and policy strategist.

Advisers don’t have the time or inclination to play around with individual pieces of muni bonds for individual investors, Friedlander added.

“The typical RIA and broker has become vastly more of an asset gatherer and vastly less of an investment decider in terms of individual pieces of securities,” Friedlander said. “That trend has been going on for a very long time.”

Lower yields tend to increase the tendency for more money to be shifted to some other deciders, Friedlander said.

Transactions and par amount traded for taxable municipal securities increased. Taxable securities trades were up 4.8% in 2019, accounting for 7% of all municipal securities trades, the highest since 2012.

The par amount of taxable securities traded increased almost 45% to $289 billion in 2019, the highest since 2011.

Continuing disclosure filings saw a slight uptick in 2019. The number of disclosures increased to 150,585 in 2019 from 147,280 in 2018, which the MSRB said was partly due to two new event disclosures added to the requirements by the Securities and Exchange Commission in early 2019.

Issuers now have to disclose under SEC Rule 15c2-12 Event 15 when they incur financial obligations, if material, as well as agreements to covenants, events of default, remedies, priority rights, or other similar terms of a financial obligation of the issuer that could affect security holders.

Another requirement new in 2019, Event 16, says that in connection with those financial obligations, issuers have to disclose events which “reflect financial difficulties,” such as a default or modification of terms.

Issuers submitted 19 disclosures associated with Event 16, and 2,059 associated with Event 15.

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