Individuals who buy municipal bonds may get more information
on what their securities firm paid for them under new requirements proposed by
the Municipal Securities Rulemaking Board. The proposal by the
self-regulator, released Monday in conjunction with a similar proposal for
corporate bonds from the Financial Industry Regulatory Authority, would require
brokers to disclose on trade confirmations the prices they paid that same day
for the same bond issue. The disclosure would go to anyone buying less than
$100,000 in bonds.
If a securities firm purchased bonds and then immediately
sold them to an investor, the buyer would clearly see the dealer’s markup. A
customer selling bonds to a dealer would also see that dealer’s same-day sale
price for that security.
The proposal is the latest effort by regulators to increase
transparency in the $3.7 trillion municipal-bond market, which was described in
a 2012 Securities and Exchange Commission report as “illiquid and opaque.”
Individual investors own almost three-quarters of the debt issued by cities,
states and other municipalities, either directly or through mutual funds. Many
buy the bonds for tax-free income as a way to fund their retirements.
The proposal comes as municipal bonds have posted gains for
10 consecutive months, the longest rally in state- and local-government debt
since 1992, according to Barclays. The strong gains have attracted
investors who abandoned munis in 2013 amid widespread concern over
Detroit’s bankruptcy and Puerto Rico’s financial woes.
The SEC’s 2012 report recommended the MSRB consider
requiring increased price disclosure to individual investors. The MSRB already
makes trade prices available through its Electronic Municipal Market
Access website, known as Emma, the group said in a news release announcing
the new proposals. Corporate-bond trades can be found at Finra’s Trade
Reporting and Compliance Engine, called Trace.
The SEC has made its own efforts to protect investors in the
muni market. Those have included settling with Kansas, New Jersey and Illinois
for failing to note underfunded pension obligations in disclosures to bond
investors and fining 13 brokerage firms for improperly selling junk-rated
Puerto Rico bonds in increments below $100,000, the agency’s first action under
a rule designed to protect retail investors from high-risk debt. The states and
brokerages didn’t admit or deny wrongdoing.
The MSRB and Finra are both seeking input on the economic
implications of the proposals as well as alternative approaches. Comments
should be submitted to the agencies by Jan. 20, 2015.
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