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Municipal Bonds:
Raising the bar on best execution
in a $3.7 trillion market

December 15, 2016

1001 Avenue of the Americas

Suite 1218
New York, NY 10018
Tel: (212) 719-7535
www.bryantparkfc.com

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Municipal Bond Market Briefing

New Era of Transparency

The!$3.7!trillion!municipal!bond!market!enters!a!new!era!of!transparency!in!2016!with!
implementation!of!a!new!best!execution!requirement!along!with!other!regulatory!
initiatives!designed!to!improve!disclosures.!!The!new!best!execution!requirement!is!the!
latest!step!in!a!multiIyear!push!by!regulators!to!bring!more!transparency!to!this!
predominantly!retail!market.!!This!series!of!regulatory!initiatives!has!significantly!raised!
the!bar!on!disclosures!for!issuers,!dealers!and!other!market!participants.!
As!a!result,!the!municipal!bond!market!is!poised!to!embrace!more!electronic!trading!as!it!
strengthens!its!compliance!and!oversight!functions.!!The!purpose!of!this!briefing!is!to!
review!recent!regulatory!developments,!with!reference!to!their!impact!on!electronic!
trading!and!on!the!market!for!data!and!technology!services.!
The!current!regulatory!initiatives!have!their!recent!roots!in!a!2012!SEC!study!of!practices!
and!dealing!costs!in!the!municipal!bond!market.1!!Research!cited!in!that!165Ipage!study!
and!subsequent!analysis!concluded!that!trading!spreads!were!significantly!higher!in!the!
municipal!bond!markets!than!in!the!corporate!bond!market.2!!The!study!also!raised!
questions!about!whether!underwriters!and!issuers!were!making!sufficient!disclosures.!!
Since!2012,!events!such!as!the!fiscal!problems!of!Detroit,!Illinois!and!Puerto!Rico!have!
kept!the!market!and!its!regulatory!issues!in!the!headlines.!
EMMA's Birth
The!Municipal!Securities!Rulemaking!Board,!the!industry's!selfIregulatory!organization,!
took!a!significant!step!toward!improving!the!market's!transparency!in!2009,!setting!up!
the!Electronic!Municipal!Market!Access!system!(EMMA)!under!authority!granted!by!
the!SEC.!!EMMA!has!two!mandates!as:
!

The!official!central!repositary!for!disclosures!by!municipal!issuers.!

A!central!source!of!historical!price!information!on!municipal!bond!trades,!giving!the!
public!free!access!through!its!web!site!to!data!going!back!to!2006.!!!

Since!2012,!dealers!have!been!required!to!report!all!trades!within!15!minutes,!which!
then!appear!on!EMMA.!!New!features!on!EMMA!allow!investors!to!compare!trade!
histories!on!bonds!with!comparable!features.!!!
In!response!to!the!2012!SEC!study!and!its!recommendations,!a!consortium!of!dealers!
announced!in!2012!the!formation!of!Municipal!Bond!Information!Services!(MBIS).!3!!The!
consortium!said!it!planned!to!launch!a!"suite!of!products!designed!to!enhance!preItrade!
price!transparency!and!postItrade!operational!practices!for!the!municipal!bond!
marketplace."!
MBIS!offers!two!data!feeds.!!The!first!is!aggregated!bid!and!offer!data,!which!is!available!
intraIday!and!refreshed!every!5!minutes.!!This!service!includes!an!endIofIday!bulk!feed.!!
The!second!is!a!Comparable!Securities!Service!designed!to!help!market!participates!
make!judgments!about!the!pricing!of!less!liquid!securities.!!MBIS!data!has!been!cited!in!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!Report!on!Municipal!Securities!Market,!Securities!and!Exchange!Commission,!July!31,!2012.!
!"Statement!on!Making!the!Municipal!Securities!Market!More!Transparent,!Liquid!and!Fair,"!Commissioner!Luis!A!Aguilar,!
U.S.!Securities!and!Exchange!Commission,!Feb.!13,!2015.!
3!Founders!include!Associated!Bond!Brokers,!Butler!Muni,!Hartfield!Titus!&!Donnelly,!Regional!Brokers!Inc.,!RW!Smith!and!
Associates,!Stark!Municipal!Brokers,!Sentinel!Brokers!Company,!Tradeweb,!Tradition!Asiel!Securities!and!Tullett!Prebon.!!
See!site:!http://www.mbis.com.!
1
2

!Bryant!Park!Financial!Communications!2015!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Municipal Bond Market Briefing

articles!appearing!in!The$Bond$Buyer,$the!leading!publication!for!the!municipal!securities!
market,!and!in!other!financial!media.!!
Defining 'Reasonable Diligence'
More!than!a!year!ago,!the!MSRB!proposed!a!new!best!execution!requirement!as!part!of!
the!next!phase!of!its!efforts!to!promote!market!transparency.!!The!approval!of!the!
proposed!amendments!to!Rule!GI18!was!followed!by!a!lengthy!comment!period!as!the!
MRSB!heard!from!the!industry!about!its!concerns!and!coordinated!with!FINRA!on!the!
details!of!implementation.!!!
On!November!20,!2015,!the!MSRB!issued!guidelines!on!the!standard,!which!will!become!
effective!on!March!21,!2016.4!!!The!amended!Rule!GI18!requires!dealers!to!exercise!
"reasonable!diligence"!to!determine!the!best!market!in!the!security!it!seeks!to!trade!on!
behalf!of!a!customer.!!Then!dealers!must!buy!or!sell!securities!in!that!market!so!that!the!
resulting!price!to!the!customer!"is!as!favorable!as!possible!under!prevailing!market!
conditions."!!
The!new!standard!will!not!apply!to!investors!with!at!least!$50!million!in!assets!as!long!as!
they!affirm!that!they!meet!the!MSRB!definition!of!"sophisticated!municipal!market!
professionals,"!or!SMMPs.!!It!also!does!not!apply!to!interIdealer!trades,!but!customer!
trades!cleared!through!another!dealer!are!covered!by!the!standard.!
MSRB!defines!"reasonable!diligence"!in!terms!of!process!and!dealers'!policies.!!MSRB!
guidance!says!that!the!factors!dealers!should!consider!in!adhering!to!the!standard!
include!but!are!not!limited!to:!
!

The!character!of!the!market!for!the!security!!(e.g.,!price,!volatility,!and!relative!
liquidity)!

The!size!and!type!of!transaction!

The!number!of!markets!checked!

The!information!reviewed!to!determine!the!current!market!for!the!subject!security!
or!similar!securities!

The!accessibility!of!quotations!

The!terms!and!conditions!of!the!customers!inquiry!or!order,!including!any!bids!or!
offers!that!result!in!the!transaction,!as!communicated!to!the!dealer!

MSRB!also!instructs!dealers!to!establish!policies!spelling!out!how!they!meet!the!
standards.!!The!Board!suggests!that!existing!standards!in!the!corporate!bond!market!
should!inform!the!language!of!these!policies.!
'Reasonable Diligence' and Electronic Platforms
Much!of!MSRB's!19!pages!of!guidance!on!Rule!GI18!II!issued!in!November!2015!II!relates!
to!dealers'!use!of!electronic!Alternative!Trading!Systems!and!"broker's!brokers"!(defined!
by!MSRB!Rule!43)!to!meet!their!obligation!for!"reasonable!diligence."!!The!guidance!
noted!that!there!is!"no!categorical!requirement"!that!a!dealer!collect!quotes!from!an!ATS!
platform!or!use!a!"broker's!broker."!But!the!guidance!makes!this!point:!
As!the!availability!of!electronic!systems!that!facilitate!trading!in!municipal!securities!increases,!dealers!
need!to!determine!whether!these!systems!might!provide!benefits!to!their!customer!order!flow,!
particularly!retail!order!flow,!and!help!ensure!they!are!meeting!their!obligations!under!Rule!GI18(a)!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
4

!MSRB,!" Implementation!Guidance!on!MSRB!Rule!GI18,!on!Best!Execution,"!Nov.!20,!2015.!

!Bryant!Park!Financial!Communications!2015!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Municipal Bond Market Briefing

with!respect!to!ascertaining!the!best!market!for!their!customer!transactions.!!Similarly,!preItrade!
transparency,!such!as!through!electronic!trading!platforms,!is!also!increasing!in!the!municipal!securities!
market,!and!dealers!need!to!periodically!analyze!and!determine!whether!incorporating!pricing!
information!available!from!these!systems!should!be!incorporated!into!their!bestIexecution!policies!and!
procedures.!

The!MSRB!acknowledges!that!a!wide!range!of!trading!systems,!pricing!platforms!and!
quote!aggregation!sites!operate!in!the!municipal!securities!market:!
Some!systems,!including!autoIexecution!systems,!both!display!prices!and!provide!execution!
functionality,!while!other!systems!display!prices!but!provide!no!execution!functionality.!!Still!other!
systems,!such!as!requestIforIquotation!systems,!may!provide!indications!of!interest!but!not!display!
prices!or!provide!execution!functionality.!

The!three!leading!ATS!platforms!for!municipal!bonds!are!TMC,%KCG%BondPoint!and!
Tradeweb.!!(See!profiles!on!Page!5.)!!They!are!used!by!dealers!to!trade!with!one!
another!as!well!as!to!provide!trading!access!to!the!retail!market!through!
workstations!and!other!types!of!services!used!by!financial!advisors.!!In!addition!to!
ATS!platforms,!the!municipal!market!uses!bulletin!boardIlike!services!such!as!
fabkom.com!that!allow!dealers!to!post!quotes!and!solicit!bids.5!!
Another!feature!of!the!market!are!the!many!retail!sites!operated!by!dealers!or!groups!
of!dealers!to!attract!and!aggregate!orders!from!individuals.!!Examples!include!
municipalbonds.com,!thebondcenter.com!and!bond!underwriter.!com.!
Spread Disclosures
Regulators!are!also!pressing!dealers!to!disclose!markups!and!markdowns!in!transactions!
with!retail!customers.!!!Under!a!proposed!change!to!MSRB!Rule!GI15,!a!dealer!who!
purchases!or!sells!bonds!from!for!its!own!account!would!have!to!disclose!the!markup!or!
markdown!on!the!costumer's!confirmation!under!three!conditions:!
! It!executes!a!transaction!on!the!same!side!of!the!market!as!the!customer!
! The!transaction!is!greater!than!or!equal!to!the!size!of!the!customer's!
! And!the!dealer!transaction!occurs!within!a!twoIhour!window!of!either!side!of!the!
customer!transaction.!
The!customer's!confirmation!would!disclose!the!difference!between!price!to!the!
customer!and!the!prevailing!market!price!for!the!security.!!This!would!be!expressed!as!
dollar!amount!and!as!a!percentage!of!the!principal!amount!of!the!customer!transaction.!!
A!hyperlink!to!relevant!price!information!in!EMMA!or!TRACE!would!also!be!included!in!
the!confirmation.!!The!MSRB!has!indicated!it!would!limit!the!proposed!rule!to!secondary!
market!trading.!
SIFMA,!in!a!letter!to!the!MSRB!and!FINRA!on!Dec.!11,!2015,!the!last!day!for!comment!on!
the!proposal,!urged!that!the!disclosure!standard!be!limited!to!riskless!principal!
transactions!involving!customers.!!It!also!favored!a!twoIhour!window!for!capturing!
contemporaneous!reference!trades!for!confirmations,!rather!than!a!sameIday!standard!
proposed!by!FINRA.!!In!general!comments,!SIFMA!urged!regulators!not!to!finalize!the!
rule!until!they!had!weighed!expected!benefits!of!the!disclosures!against!the!high!costs!of!
implementation!and!the!potential!impact!on!market!liquidity.!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
5!In!September!2015,!Bloomberg!reported!that!one!of!the!trading!sites!operated!by!a!"broker's!broker"!II!
MuniBrokers.com!II!was!under!scrutiny!by!the!Justice!Department!for!anticompetitive!practices!in!secondary!trading.!!The!
site,!owned!by!Hartfield,!Titus!&!Donnelly!LLC,!was!reported!to!have!been!the!target!of!a!complaint!that!firms!using!the!
site!had!agreed,!or!were!being!asked!to!agree,!to!boycott!competing!services.!!!A!day!later,!news!reports!said!the!inquiry!
had!been!closed!with!no!action!taken.!

!Bryant!Park!Financial!Communications!2015!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Municipal Bond Market Briefing

Profiles of Municipal Bond ATS Platforms

TMC Bonds

KCG BondPoint

Tradeweb Direct

Background: Privately held ATS

founded in 2000 as TheMuniCenter with
backing of Merrill Lynch (now Bank of
America Merrill Lynch), Salomon Smith
Barney (now Citi Global Markets), and
Morgan Stanley. Assured Guaranty
took a stake in April 2001. These firms
are active on the platform as market
participants and board members. In
2011, the firm rebranded as TMC
Bonds. Located at 850 Third Avenue in
New York, it has about 100 employees.

Background: A fixed-income ATS and

applications provider to the retail bond
market. BondPoint is a division of KCG
Holdings, the publicly traded dealer
and market maker formed by the 2012
merger of Knight Capital and Getco.
BondPoint is used by about 150
dealers to trade retail-sized orders.
KCG's center of operation on the East
Coast is in Jersey City, NJ. Headcount
for BondPoint could not be determined.

Background: Tradeweb added

municipal bond trading capability with
its acquisition in October 2011 of
Rafferty Capital. In 2004, Rafferty had
acquired J.J. Kenney Drake, a long
established muni market inter-dealer
that was owned by Standard & Poor's.
In 2013, Tradeweb acquired
BondDesk Group LLC, a retail fixedincome products platform that was
said to have175 dealers and 105,000
fiancial advisors on its network. After
the acquisition, Tradeweb grouped
BondDesk and J.J. Kenney into its
retail division, rebranded as Tradeweb
Direct. According to site, J.J. Kenney's
trading system "provides regional and
national coverage on approximately
500 screen pages of market activity,
offerings and bid-wanteds; coverage
by region, state and bond type; and
descriptions on various advertised
issues through web and digital feeds."

Market Share: TMC has reported that

its share of "MSRB-related, inter-dealer
trades" was 29% in 2014.
Clients: Describes client segments as
institutional "customers" (their quotation
marks), interdealers & proprietary
traders, and retail brokerages. In
October 2013 news release, TMC said
its network included 5,000 traders and
over 125,000 financial advisors.
Products and services
Provides customized desktop
applications for advisors and retail
investors. Private label offerings include
the Advisor Workstation and Client
Investor Portal.

Market Share: KCG's third quarter

SEC filing reported that its market
share of municipal bond trades fewer
than 250 bonds each was 7.5% in the
quarter. That was up from 6.9% in the
second quarter and 6.1% in the first
quarter.
Clients: Include "buy- and sell-side
traders who access our fixed income
ATS, an electronic marketplace linking
more than 500 financial services firms
to 200,000 live and executable bids
and offers."
Products and services
!

Advisor Workstation supports

commissioned brokers, dually registered
financial advisors, and fee-only
independent RIAs, providing:
!

Asset Gathering (Offerings Lists,

Customer Portfolios/Proposals &
Tax Loss Harvesting Analysis)

Data from DPC Data, Interactive

Data, Thomson Reuters

Pre-Trade Analytics

Price Discovery & Multi-Asset

Class Composition (i-Scatter Yield
Visuals, Basket Trading)

Pre-Trade Compliance &

Regulatory Vetting

Advisors orders can be routed to TMC

Bonds marketplace for auto execution
or to a dealer's fixed-income traders for
"review & release." Clearing brokers
can have orders routed to them in the
absence of a correspondents own
trading desk
The Trader Workstation offers live,
executable access to two-sided markets
for all taxable and tax-exempt securities.
Leadership
CEO and Chairman, Tom Vales;
President, James Wangsness; CTO,
David Kovalchick

!Bryant!Park!Financial!Communications!2015!

KCG BondPoint Broker

Workstation: Tailored fixed
income product access and
trading for financial advisors and
brokers. Browser-based
application provides entry to live
secondary market trading, new
issues, fixed income reports,
analytics, portfolio tools and news
through integration with front,
middle and back office systems
KCG BondPoint Trader
Workstation: Advanced fixed
income trading capabilities for
trading professionals. Web-based
platform enables direct market
access to the KCG BondPoint
ATS for price discovery, analytics
and trade execution.
BondScope: An electronic
surveillance tool. Three modules
designed work independently or
as an integrated solution to
provide pre-trade and post-trade
transaction review and oversight
to help deliver best execution
through price transparency and
market analytics. Activity and
trade audit results are archived
for reference and reporting.

Leadership
Bill Vulpis is Managing Director and
Head of BondPoint:.

Tradeweb is majority-owned by
Thomson Reuters and 11 dealers. Its
headquarters are at 1177 Avenue of
the Americas.
Market Share: Facilitates 1 in 5 of all
municipal bond trades, according to
the Tradeweb site. That statistic is
attributed to MSRB data.
Clients: Reports it has more than
2,100 Liquidity Takers on its network,
defined as financial advisors, traders
and buy side investment
professionals. The site says there are
more than 200 Liquidity Providers,
defined as dealers and buy-side
investment professionals. Provided
quotes on 40,438 unique municipal
securities, as of 10 am on Dec. 7,
2015, according to the Tradeweb site.
Products and services
Services are delivered through
Tradeweb Direct workstation.
Includes analytical tools, trading
history report and research, and a
suite of compliance and monitoring
tools. Notes the site: "Automated preand post-trade analysis capabilities
support best execution efforts by
indicating if bond offerings are fairly
priced and whether customers
executions fall out of line with the
firms pre-set tolerance levels."
Tradeweb Direct Muni Ticker service
is available on the The Bond Buyer
site.
Leadership
John Cahalane is Managing Director
and Head of Tradeweb Direct.

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Municipal Bond Market Briefing

Scrutiny of Issuers and Their Advisors

Among!the!pending!regulatory!issues!in!the!municipal!market!is!a!proposed!rule!on!
the!conduct!of!municipal!advisors!(MAs),!which!includes,!under!MSRB!definitions,!
broker!dealers!and!investment!banking!specialist!firms!working!with!issuers.!!!
The!industry!has!criticized!proposed!amended!language!relating!to!broker!dealers'!
principal!transactions!with!issuers!on!securities!deals!in!which!their!firms!provided!
advice.!!Industry!groups!have!asked!for!further!clarification!on!the!MRSB's!latest!
version,!which!was!released!on!Nov.!9,!2015.!
The!debate!over!Rule!GI42!comes!amid!stepped!up!regulatory!actions!against!both!
broker!dealers!and!issuers.!!In!June!2015,!36!banks,!including!several!leading!Wall!
Street!firms,!settled!SEC!charges!that!they!failed!to!make!adequate!disclosures!to!
investors.!!Each!firm!paid!$500,000!in!fines,!except!for!one!regional!broker,!which!
paid!$250,000.!!!The!fines!were!the!first!against!underwriters!since!the!SEC!launched!
its!Municipalities!Continuing!Disclosure!Cooperation!(MCDC)!program,!which!offered!
leniency!if!underwriters!and!issuers!took!action!to!correct!disclosure!failures.!
MCDC,!along!with!the!new!approaches!to!best!execution!and!the!role!of!MAs,!has!
bolstered!the!market!for!technology!and!data!products!designed!to!help!dealers,!
underwriters!and!financial!advisors!document!their!compliance!process.!!An!example!
is!the!Diver$suite!of!products!offered!by$Lumesis!Inc.!of!Stamford,!Connecticut.$!TMC,!
KCG,!Tradeweb!and!Pershing!all!have!relationships!with!Lumesis.!
Market structure: Retail, regional, and highly fragmented
In!adjusting!to!new!best!execution!and!disclosure!requirements,!market!participants!face!
the!challenges!inherent!in!a!highly!fragmented,!illiquid!trading!environment.!!The!market!
consists!of!over!1.5!million!different!securities!issued!by!more!than!80,000!cities,!states!
and!other!agency!and!corporate!entities.!!These!
Municipal Bond Ownership
securities!have!a!wide!range!of!different!features!
Other, 4%
regarding!security,!call!structure,!insurance,!tax!
status,!sinking!fund!and!other!features.6!
Insurance
Cos., 13%

Banks,
14%

Individuals, 42%

Mutual
Funds,
28%

The!market!is!predominantly!retail,!with!
individuals!accounting!for!70%!of!holdings!
directly!or!through!mutual!funds.!!Retail!
investors!are!drawn!to!these!issues'!taxIexempt!
status!and!their!security!relative!to!corporate!
bonds.!!In!selling!these!securities,!advisors!focus!
on!the!taxIequivalent!yield!of!municipal!issues!
relative!to!corporate!bonds.!

Because!tax!exemptions!are!usually!applicable!
only!to!obligations!in!specific!states!or!
SIFMA Q2 2015 Data
jurisdictions,!the!market!is!highly!regional!in!
character.!!Municipal!bond!mutual!funds!reflect!this!regional!nature.!!Of!1,055!municipal!
bond!mutual!funds!available!on!Fidelity's!site,!282!are!singleIstate!funds.!!!A!third!of!the!
singleIstate!funds!on!the!site!are!focused!on!taxIexempt!issues!of!California!entities.!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
!A!highly!readable!guide!to!the!categories!of!municipal!securities!can!be!found!on!Fidelity's!site!at:!
!http://www.fidelity.com/fixedIincomeIbonds/individualIbonds/municipalIbonds.!
6

!Bryant!Park!Financial!Communications!2015!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Municipal Bond Market Briefing

Municipal!bonds!are!largely!a!buyIandIold!market!in!which!issues!trade!infrequently!and!
in!small!lots.!!In!2014,!the!MRSB!released!a!study!that!looked!at!trade!data!covering!43!
million!secondary!principal!transactions!in!more!than!a!million!distinct!securities!from!
2003!through!2010.!7!!The!research,!which!included!a!period!marked!by!the!credit!crisis!
and!the!implementation!of!real!time!trade!reporting,!found!that:!
!

50%!of!all!trades!in!the!municipal!market!had!a!value!at!or!below!$25,000!

Only!5%!of!trades!had!a!value!equal!to!or!in!excess!of!$490,000!

50%!of!all!municipal!securities!traded!an!average!of!2.4!times!or!fewer!each!year!

Monthly!trade!data!compiled!by!SIFMA!showed!that!in!November!2015!82%!of!all!
municipal!bond!transactions!were!under!$100,000!and!13%!were!between!$101,001!to!
$500,000!in!the!month.!!
Trading!volume!in!the!municipal!securities!market!declined!after!the!credit!crisis!as!the!
worries!about!the!fiscal!condition!of!issuers!and!with!low!yields!reduced!investor!
demand.!!(See!chart,!below.)!!Volumes!have!yet!to!return!to!the!highs!seen!in!the!summer!!
Trade Breakdown
November 2015

Trading Volume on the Decline

SIFMA municipal securities trading data, Jan. 2007-Nov. 2015

Total trades 33,674

$700,000

Source; SIFMA

$600,000

Monthly(volume,(par(value(in($million(
$500,000

Interdealer
Trades
39%

$400,000

$300,000

Customer
Bought
42%

$200,000

$100,000

Customer Sold
19%
Ju
l-0
Ja 8
n09
Ju
l-0
Ja 9
n10
Ju
l-1
Ja 0
n11
Ju
l-1
Ja 1
n12
Ju
l-1
Ja 2
n13
Ju
l-1
Ja 3
n14
Ju
l-1
Ja 4
n15
Ju
l-1
5

08

n-

Ja

l-0

nJa

Ju

07

$0

Municipal Securities Issuance

Municipal Bond Mutual Fund Flows

$ billions, through Nov. 30, 2015. Source: SIFMA

$ millions, through Dec. 8, 2015 Source: ICI

2012

400.0
350.0

2013

2014

2015

2011

300.0
250.0
200.0
150.0
100.0
50.0
0.0

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!
7!See!"Report!on!Secondary!Market!Trading!in!the!Municipal!Securities!Market,"!Eric!R.!Sirri,!Babson!College,!July!2014.!!
This!report!was!commissioned!by!the!MSRB!and!is!available!on!its!site.!

!Bryant!Park!Financial!Communications!2015!

!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!!Municipal Bond Market Briefing

of!2007.!!But!issuance!has!picked!up!in!2015!and!seems!on!track!to!exceed!levels!last!
seen!in!2012.!!Moreover,!mutual!fund!net!flows!have!recovered!from!a!midIyear!slump,!
with!more!than!$6!billion!of!net!new!money!going!into!portfolios!so!far!in!the!fourth!
quarter!of!2015.!
Conclusion
Regulators'!imposition!of!new!bestIexecution!standards!and!additional!disclosure!
requirements!is!remaking!the!municipal!securities!market.!!The!changes!mean!that!
market!participants!will!likely!step!up!adoption!of!electronic!trading!and!the!purchase!of!
processing!and!monitoring!services!in!2016!as!they!adjust!their!compliance!and!
oversight!to!meet!the!new!standards.!!Larger!broker!dealers!and!advisor!networks!that!
are!able!to!spread!these!costs!over!a!sizable!franchise!will!reap!competitive!advantages!
as!a!result!of!this!change.!
At!the!same!time,!an!improving!fiscal!picture!for!states!and!cities,!plus!the!prospect!of!
higher!yields,!could!help!reinvigorate!the!municipal!securities!market!in!2016.!!High!
levels!of!volatility!in!the!equities!markets!may!also!drive!more!interest!in!this!fixedI
income!sector.!!
As!Morningstar!noted!in!a!Dec.!10,!2015!commentary:!
Despite!a!few!negative!headlines!(Puerto!Rico,!Illinois,!and!Chicago,!to!name!a!few),!the!
municipal!market!has!recovered!nicely!since!the!2008!crash!and!largely!remains!
healthy...!California,!for!example,!topped!the!short!list!of![flagging]!states!following!the!
crash,!but!budget!cuts!and!tax!hikes!helped!the!state!get!its!finances!in!line,!making!it!a!
highIprofile!success!story.!

The!taxIexempt!market!has!seen!an!imbalance!between!supply!and!demand!in!recent!
months,!the!report!suggests,!adding,!"that!tailwind!has!helped!municipal!bonds!and!
funds!perform!well,!even!in!the!face!of!potentially!rising!interest!rates."!!A!sign!of!the!
imbalance!was!the!narrowing!of!discounts!on!municipal!bond!closedIend!funds,!from!an!
average!of!7%!at!the!end!of!2014!to!6%!as!of!November!2015,!the!fund!researcher!notes.!!!
Though!longerIduration!municipal!bond!mutual!funds!will!see!a!slight!outflow!in!2015,!
portfolios!in!Morningstar's!intermediate!national!category!had!attracted!$10.75!billion!in!
net!flows!through!the!end!of!October!and!looked!set!to!end!the!year!on!a!strong!note.!
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!Bryant!Park!Financial!Communications!2015!