MSRB seeks comment on elimination of large trade size masking on price

By Angela McDaniels

Tacoma, Wash., June 1 - The Municipal Securities Rulemaking Board is seeking comment on including the exact par value on all transactions disseminated from the MSRB Real-Time Transaction Reporting System, according to an MSRB notice.

Currently, transaction information includes the exact par value on all transactions with a par value of $1 million or less but includes an indicator of "1MM+" in place of the exact par value on transactions where the par value is greater than $1 million. The exact par value is then disseminated five business days later.

Background

In connection with the MSRB's predecessor end-of-day trade reporting system and the subsequent development of reporting system, MSRB said it received comments that, given the prevalence of thinly traded securities in the municipal securities market, it sometimes is possible to identify institutional investors and dealers by the exact par value included on trade reports.

It was noted that, where the market for a specific security is thin and only one or two dealers are active, revealing the exact par amount also may convey information about a dealer's inventory (i.e., size of position and acquisition cost) and allow other dealers to use this information to trade against the dealer's position, thus reducing the incentive for a dealer to take large positions in these circumstances. The use of the "1MM+" indicator was implemented to address these concerns.

In January, the Government Accountability Office published a report on municipal securities market structure, pricing and regulation as required under the Dodd-Frank Wall Street Reform and Consumer Protection Act. In this report, the GAO concluded that individual investors generally have less information about transaction prices than institutional investors.

The GAO observed that: "Some of these [institutional] investors said that even though MSRB's [Real-Time Transaction Reporting System] did not disclose total transaction amounts for trades over $1 million - which the system reports as trade amounts of '$1+ million' - they typically were aware of the amount and the price of these large transactions through their relationships with broker-dealers."

Request for comment

In particular, the MSRB seeks comments on whether the masking of trade size has been effective at achieving its initial purpose and whether the benefits, if any, of retaining masking outweigh the potential negative effects.

To the extent that market participants believe that such masking should continue, the MSRB seeks comment on the justification for doing so and also suggestions for alternatives to discontinuing par value masking that would further the initial purpose of this practice while reducing or eliminating the selective dissemination of such information.

Comments can be submitted at http://www.msrb.org/Comment.aspx?notice=2012-29 through July 2.

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