Jan. 28 (Bloomberg) -- The best way to determine you paid a fair price for your U.S. municipal bonds is to see whether the yield is comparable to the return on other securities of similar quality, maturity, coupon and block size on the market.

This nugget is contained in the Municipal Securities Rulemaking Board's review of dealer pricing responsibilities, released on Monday.

The market has been waiting for this review since last spring. The above definition of a fair price is the closest anyone is likely to get in an over-the-counter market that at times seems more like the market for collectibles rather than actual securities.

The MSRB review puts the bad guys on notice, and emphasizes how important it is for dealers to sweat the details.

One of the wonders of the price reporting system, which has only been in place since 1995, is that it regularly turns up instances of wide price disparities on the same bond. This, says the MSRB, suggests that dealers ``may not always be making the requisite efforts to ensure that transaction prices are reasonably related to market value.''

The municipal bonds involved in these situations ``differ from day to day and, while they represent a very small minority of the average 10,000 issues traded each day,'' the MSRB says, ``they are sufficiently problematic to require regulatory review.''

Which means the Securities and Exchange Commission and the National Association of Securities Dealers can be expected to get into the act one of these days, in a more high profile way than they do now.

Market Value
There are no standards for prices or markups or markdowns in the municipal market, which drives some people crazy. The MSRB's rule G-30 simply states that a bond's price should be ``fair and reasonable, taking into consideration all relevant factors.''

If this sounds a little ambiguous, so is the municipal market. One size can't fit all, not in a market where there are so many variations.

What must your dealer do for you? The dealer ``must exercise diligence in establishing the market value of the securities,'' says the MSRB. The dealer must know the market value of a security, or ``use diligence in the attempt to ascertain it.''

The ultimate price must ``bear a reasonable relationship to the prevailing market price of the security.''

Simple Error
The MSRB review also attempts to explain the large intraday differentials in price that have been pointed out by Kevin Olson of MunicipalBonds.com, among other people. Olson on his Web site every day carries a list of transactions where the prices are 10 points and more apart.

Skullduggery? Not always. The ``primary cause'' of wide price disparities is simple dealer error, says the MSRB. In other words, a clerk types in 11.5 and 116, instead of 115 and 116. The error shows up in the price transaction reports.

About half of the top 100 ``worst spreads'' listed on Olson's website for 2003, for example, look like simple errors in price reporting.

Yet not everything can be explained by clerical error. Consider ``transaction chains'' where prices are 10 percent or more apart. ``The question is raised whether each of these customers received a price reasonably related to the market value of the security,'' says the MSRB.

``This question in turn raises the issue of whether the dealers (and any broker's brokers that may have acted on behalf of such dealers) made sufficient effort to establish the market value of the security when effecting their transactions.''

Now is the time for the SEC or NASD to break open one of those ``transaction chains'' and show who did what. The ``to whom,'' well, we can probably figure that out.