Worst Municipal Bond Market Spreads for the 2nd Quarter of 2002

Worst Municipal Bond Market Spreads for the 2nd Quarter of 2002

MunicipalBonds.com Will Develop System of "State-specific" Municipal Bond Market Makers

MunicipalBonds.com today releases its study revealing the 100 worst Municipal Bond same day bid/offer market spreads for the 2nd quarter 2002.

(The study considers same day bid/offer market spreads of "actively" traded Municipal Bonds. To be actively traded a Municipal Bond must have traded at least three times.)

Previously, Municipal Bonds released studies of the Worst Spreads of 2001 and Worst Spreads of Q1/2002.

The worst spread in 2001 was 75 points. During the months of January, February and March 2002, the worst spread was 63 points. The trend of very wide and potentially illegal same day bid/offer market spreads in the Municipal Bond markets continued in the months of April, May and June 2002. This time, the worst spread was 32 points and was found in the State of Iowa.

Fair Pricing
With this continued proof of unfair and inefficient markets within the Municipal Bond industry, MunicipalBonds.com will now advocate the idea of "fair pricing" in the Municipal Bond markets and develop a system of "State specific" Municipal Bond Market Makers. Our Red Flag reports and Worst Spread studies make it apparent that something must be done.

(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 up to 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
MunicipalBonds.com does 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.

We have had difficulty getting more and better price transparency. SEC Chairman Harvey Pitt agrees and he recently demanded more and better price transparency. In response, the Bond Market Association, which is a trade group of Wall St brokerages and underwriters who also comprise the same Board of the MSRB, argued against 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.

MunicipalBonds.com urges State Treasurers, State Securities Regulators and so on to support this effort of Municipal Bond Market Makers for your State and on behalf of investors within your State.

In addition and as always, MunicipalBonds.com demands:

• all Municipal Bond trades be reported next day
• dealer identifiers be attached to all trades

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