Press Release 4/03/02 11:00M Eastern
MunicipalBonds.com
Worst Ten Spreads of 2001
Worst One Hundred Spreads of 2001
75 Point Spreads in Municipal Bond Markets
Study Reveals Worst Municipal Bond Market Spreads of 2001
In a further extension of its "Red Flag" feature exposing Municipal Bonds
with bid-offer spreads exceeding 4 points, MunicipalBonds.com has conducted
a study of bid-offer spreads for all of 2001.
The study reveals spreads as wide as 75 points for a single, actively traded
and two-sided Municipal Bond on the same trading day.
There are two "Worst of 2001" lists available. Depending on press content
needs, both a Worst Ten and a Worst Hundred of 2001 list are now posted at
www.MunicipalBonds.com. They can be found as a Special Report on our News
and Press Releases page.
Like other pricing features available on MunicipalBonds.com, the 2001 study
uses actual trade data aggregated by the Municipal Securities Rulemaking
Board (MSRB). Since 1994, all Municipal Bond transactions must be reported
at the end of every trading day. The trade data itself and its
delivery/collection procedure is industry wide and well established. No
other data was used or considered in the study. A simple calculation
determines the point difference between bid and offer.
Limitations of 2001 Study
- Bid-offer spreads reviewed are based on "same day" bid-offer data.
- To be included in the study, a specific Municipal Bond must have been
two-sided with transactions on both the bid and offer side.
- MunicipalBonds.com utilizes a "best scenario" spread standard. In other
words, the best, or highest, bid and the best, or lowest, offer are utilized
for the spread calculation.
These three functional settings, or limitations, actually work to the
advantage of Municipal Bond underwriters/dealers and traders. Spreads could
actually be worse than shown.
Analysis Futile Without Dealer Identities
Though the spread figures are very large and fairly described as shocking,
appropriate analysis is not currently possible.
As you look at the "Worst" lists, you will see columns such as number of
trades and volume. We can actually provide you with specialized reports
detailing all these transactions—including time of trade. We can provide
you with specialized reports detailing any and all transactions of any
specific bond for the entire year. From these you can again look at the
abusive spreads and make commentary.
But what we cannot provide you, and what none of us are allowed to see, not
even MunicipalBonds.com, is the identity of the dealer behind any of these
trades.
The MSRB has restricted dealer identities.
We do know that, outside the MSRB, the only other groups with access to
dealer identities are the SEC and the NASD-R, which has enforcement
responsibility.
MunicipalBonds.com has advocated, requested and worked for the inclusion of
dealer identities within the trade data.
With the stark revelations of this 2001 study as well as the continued stark
revelations within the daily Red Flag report, MunicipalBonds.com again
requests that dealer identities be included in the general price transaction
information.
Until then, we'll provide you with the numbers and hope you can provide
commentary along with reporting the abusive spreads.
If Mistakes or Input Errors -- Still a Lose-Lose Situation
If, after viewing the lists, you still can't believe what you see don't feel
too bad because we felt the same way. With some of the larger spreads, we
were especially concerned with the possibility of mistakes in the numbers.
It could have been something as simple as an input error.
But we have never received any correction(s) from the MSRB or NASD-R or
whoever.
This brings up just as serious an issue. Has or is anyone really looking at
the data? This simple study of 2001 as well as the daily Red Flag report
reveals serious discrepancies in same-day and best scenario bid-offer
spreads of actively traded Municipal Bonds. Since there have been no
corrections (that we have received) and if there have been no enforcement
actions, then this unfortunately indicates that the MSRB data is not being
watched.
Either way, if the data is incorrect due to an error or if the Red Flagged spreads are indeed this bad, the situation needs to be addressed.
Regarding The Definition of "Actively Traded"
Comment to the SEC
A final limitation to the 2001 study that must be disclosed is that the study is based on "actively traded" Municipal Bonds.
The MSRB defines "actively traded" as Municipal Bonds that have traded at least four times on that single trade date. All Municipal Bonds that traded three or fewer times are not included in the daily price transaction report.
This limitation again favors underwriters/dealers and traders because spread abuses could be worse for less actively traded Municipal Bonds than those reported for actively traded.
On this issue, MunicipalBonds.com has again advocated, requested and worked for next-day release and inclusion of all transactions in MSRB releases.
In response, the Board Members of the MSRB recently offered to change the definition of "actively traded" from four trades to three trades on a specific trade date.
This definition and rule change must be reviewed and approved by the SEC.
As part of this press release, MunicipalBonds.com wishes to provide comment to the Commissioners of the SEC regarding the MSRB request:
About MunicipalBonds.com:
MunicipalBonds.com is a non-aligned public service information source actively facilitating and promoting price transparency and continuing disclosure in the Municipal Bond market.
Contact: Kevin Olson
Company: MunicipalBonds.com
Phone: 415-922-7870
Email: Kevin@MunicipalBonds.com
URL: http://www.municipalbonds.com
 
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