Part 1

Introduction for both National Regulators and State Specific Securities Officials

MunicipalBonds.com is the voice of investor advocacy in the Municipal Bond and public finance markets.

We currently have two main areas of concern:

1. The first can generally be referred to as "fair disclosure".
2. The second includes the issue of "price transparency", and more importantly the goal of "fair pricing" in the Municipal Bond markets.

My comments today focus on price transparency, and the specific goal of "fair pricing."

MunicipalBonds.com and Price Transparency
For more than two years MunicipalBonds.com has been posting transaction and price information of the previous day's Municipal Bond trades as supplied to us by the MSRB's Daily Transaction Report.

We take this large amount of data and assemble it into a user-friendly design similar to a closing stock price table found in any newspaper. For each unique Municipal Bond traded, we consider it important to list the best or highest bid in one column; and the best or lowest offer in another. From these two columns we do a very simple calculation to determine the same day and best-case bid/offer market for each Municipal Bond traded.

We then place a Red Flag next to each Municipal Bond that had more than a four point spread.

This led to our daily Red Flag report of wide and potentially illegal spreads.

From these Red Flag reports, we did a study and released the "Worst Spreads of 2001." In it, we uncover and disclose same day bid/offer market spreads of up to 75 points--not basis points--75 points! What this means, just so this is clear, is that an investor purchases a Municipal Bond in the morning for $100,000.00, and anytime later in the day sells the same Municipal Bond for $25,000.00.

But this is the good news. Our reports are based on best scenario numbers. Things could be worse. I need more information, I need more transparency to produce more reports and analyze the numbers. As always, MunicipalBonds.com demands that the MSRB:

1. report all Municipal Bond transactions next day
2. include and make public the broker/dealer identifier for each transaction

Part 2

For State Securities Administrators and Officials

Fair Pricing
With this said on the issue of "price transparency" I would like to now introduce the idea of "fair pricing" in the Municipal Bond markets. The MunicipalBonds.com Red Flag reports and studies make it apparent that something must be done.

I would like to thank the SEC for inviting me here today so I can explain a new MunicipalBonds.com project that will bring order to the erratic Municipal Bond market.

(State Specific) Municipal Bond Market Maker/Specialist
The New York Stock Exchange lists as a simple definition the role and responsibility of a "specialist" as essential to a customer-driven system as they maintain fair, competitive, orderly and efficient markets (of the stocks which they are assigned.)

The NASDAQ equity trading system similarly states that the key to their system is registered "market makers" who are required at all times to post their bid and ask prices and ensure liquid and efficient markets.

In the Municipal Bond markets, there is no such effort to facilitate efficient and fair markets.

More than anything, the large same-day bid/offer market spreads of 75 points probably show illegal activity best met with indictments. But without complete information it is hard for me to do anything about the large spreads I Red Flag every day.

But what can be concluded from the Worst Spread studies and Red Flag reports is that the Municipal Bond market clearly has inefficiencies.

After more than 27 years of waiting, I will step up and undertake a project aimed at making the Municipal Bond markets more efficient, more orderly and fair for all investors. MunicipalBonds.com calls for and will implement a system of "State Specific" Municipal Bond Market Makers and Specialists.

State-by-State
For simple reasons beginning with tax and investment considerations, the designation clearly must be State specific. Those Municipal Bond dealers who wish to specialize in Oregon Municipal Bonds may do so. Those who wish to be identified as a Washington Municipal Bond Market Maker may register as such.

Responsibilities
But with registration and designation comes responsibilities. Similar to both the NYSE and NASDAQ, Municipal Bond Market Makers must pledge to and do certain things to facilitate fair, competitive, orderly and efficient State Municipal Bond markets.

(For a more detailed pledge of responsibilities, please go here.)

Grassroots Effort
I do not necessarily blame Congress for the problems within the Municipal Bond markets. In 1975, when they established the Municipal Securities Rulemaking Board, they probably thought they were doing a good thing. However, when forming the structural basis for the Board, they unknowingly allowed an imbalance that cannot be overcome. Of the 15 Board members, at least 10 represent Wall St broker/dealers and underwriters. The make-up has almost always been investment bankers whose self-interest and focus is on new bond issuance.

The result for much of the Municipal Bond market can be likened to "developers" who want the project done, their money in the bank, and as the door hits everyone else in the butt on the way out they sparkle a smile and say "have a nice life." To them there is no secondary market. Unfortunately, after 27 years of the MSRB at the helm, much of the Municipal Bond markets are probably worse than the secondary market for vacation time shares.

I have had difficulty getting more and better price transparency. SEC Chairman Harvey Pitt agrees with me and he recently demanded more and better price transparency. In response, the Bond Market Association, which is a trade group of Wall St brokers and underwriters who also comprise the same Board of the MSRB, refuted his request.

We need to take action on the issue of "fair pricing" in the Municipal markets. We need to initiate a market maker and specialist system similar to the NYSE and NASDAQ. We must do it or it will never happen.

I ask you, as State Securities Regulators, State Treasurers, and so on to support this effort of Municipal Bond Market Makers for your State and on behalf of investors within your State.

Background:
MunicipalBonds.com is a public service information site dedicated to 1) publicizing and actualizing price transparency and fair pricing in the Municipal Bond markets, as well as 2) advocating and actualizing fair disclosure of Municipal Bond disclosure information--hopefully through development of the long called for "centralized database."

Contact: Kevin Olson
Company: MunicipalBonds.com
Phone: 415-922-7870
Email: Kevin@MunicipalBonds.com
URL: http://www.municipalbonds.com