Bond Investors May Unlock More Information

Rule-Making Group Is Expected To Require Price Reporting Of Munis 15 Minutes After Trade

Some investors have long complained that they don't have access to up-to-date information about municipal-bond prices.

That will likely change next January, when municipal-bond dealers are expected to be required to report price data on the same day -- within 15 minutes of when a trade happens. Regulators and investor advocates say the change will increase the "transparency," or information investors get, in the opaque bond market and possibly reduce their cost of trading.

But bond-market regulators still have to work out the details of how extensive the information will be. Among the issues set to be discussed at a meeting of the Municipal Securities Rulemaking Board starting Wednesday in Maui, Hawaii, is whether to disseminate publicly the new price data for all municipal bonds or a smaller group of highly rated bonds.

The group's decision, which could be announced as early as next week, comes as the Securities and Exchange Commission and the National Association of Securities Dealers are investigating wide price swings and potentially large dealer markups in the bond market. Tax-advantaged municipal bonds are a particular focus because individual investors directly own about $670 billion of the $1.9 trillion in municipal bonds outstanding.

Regulators, including some SEC officials, are encouraging the MSRB to move as quickly as possible in getting real-time pricing for all bonds. "We need to get to the end of the transparency timeline," SEC Commissioner Cynthia Glassman urged bond-industry legal officials in a recent speech. "I sincerely hope I will be the last SEC commissioner to have to argue for increased transparency in the bond markets."

Ms. Glassman added that a new SEC study will show that small trades in the municipal market are "substantially more expensive than large trades" because of a "lack of transparency" in the market. The study is expected to be released Wednesday.

Bond dealers are arguing that the MSRB should move slowly. The Bond Market Association, which represents dealers, agrees that trades for bonds with a rating of A- or higher -- representing 90% to 95% of the trading volume of municipal bond trades but only about 80% of municipal debt issues rates by Standard & Poor's -- should be reported quickly. But for bonds rated BBB+ or below, and those that aren't rated, it says that only trades of less than $1 million should be subject to the new reporting rules. Prompt reporting of larger trades in these bonds could make prices more volatile and therefore hurt investors, an issue that requires further study, the Bond Market Association warned in a letter to the MSRB last fall.

Currently, all muni-bond trades are reported by the end of the day to the MSRB and then disseminated the following morning. Investors can find the data on Web sites such as Investinginbonds.com, which is run by the Bond Market Association, or Municipalbonds.com, which is run by Kevin Olson, a former bond trader and investor advocate.

The MSRB's decision on new reporting rules will show both how independent the group is and the extent to which other regulators are forcing the board to make some tough choices. Created in the 1970s by an act of Congress, the MSRB has 15 members, 10 of whom work for banks or brokerage firms. Christopher "Kit" Taylor, the MSRB's longtime executive director, says that the organization has acted independently in the past and will do so this week.

Real-time pricing in the municipal-bond market has been a goal of regulators since the mid-1990s. But in 1998, data-collection problems delayed the MSRB's early efforts to distribute real-time prices. Further delays were caused by preparing computers for the year 2000 and by the Sept. 11, 2001, terrorist attacks. Last year, when more technical glitches arose over how some trades would be processed, the MSRB delayed the roll out from this summer until January 2005.

Mr. Taylor says the delays "were totally out of the board's control," adding that the MSRB wasn't getting much pressure to implement the rules and was getting letters from the industry saying "you don't need to do this."

Industry critics such as Mr. Olson say further delays aren't justified. Investors should get the real-time pricing "right away," he says.

Tuesday's Market Activity
Caution ahead of appearances by Federal Reserve Chairman Alan Greenspan and pressure from government debt auctions sent Treasurys prices lower. At 4 p.m., the 10-year note was down 13/32 point, or $4.06 per $1,000 face value, at 1014/32. Its yield rose to 4.107% from 4.058% Monday. Meanwhile, Wal-Mart Stores Inc. sold $1.25 billion in seven-year global debt, the second-largest dollar-denominated deal by a nonfinancial U.S. company so far this year, via CSFB, Lehman Brothers and Goldman Sachs. It was priced to yield 0.54 percentage point over Treasurys, or a yield of 4.195%.